Points are prepaid interest that you can pay up front. You can pay points to get a lower rate on both fixed rate and adjustable rate mortgages, but the points charged to reduce the rate may vary depending on the type of loan. One point is equal to 1% of the mortgage amount. (Example: $100,000 mortgage amount = $1,000 point)

A home equity loan is a closed loan, which means you receive a single lump sum that you pay back with regular payments over a predetermined period of time. It is possible to get a fixed rate with a home equity loan.

A home equity line of credit (HELOC) usually features a variable interest rate, but gives you the ability to withdraw money at various times and at various amounts using a check or credit card. Most HELOCs are offered with a specific period during which you can borrow money. To repay, some plans require a minimum monthly payment that includes principal plus accrued interest. However, in some cases, it is possible that the payment toward the principal will not cover the entire loan balance by the end of the term. So at the end of the term, you will still need to continue payments until the principal is completely paid back. Also, it may be required that you will need to pay the entire balance all at once at the end of the term.

If you decide to apply for a HELOC, look for a plan that is best suited to your particular needs. Read the credit agreement carefully, and make sure you understand the terms and conditions, as well as the APR (annual percentage rate) and the costs of setting up the plan.

Many people get a home equity loan or home equity line of credit from their current lender or bank without considering other options, but this can be restrictive. Home equity loans and HELOC products have a variety of terms and conditions. By shopping around, you may find an institution that offers a home equity product that will perfectly fit your needs.

Make sure you’re doing business with a reliable, reputable business. A trustworthy lender will be able to provide all of the details of your home equity loan or line of credit in writing. Don’t forget to ask family and friends for recommendations. Online reviews may not be as thorough as hearing feedback from the people closest to you, and it is likely that you will share similar expectations.

Also make sure that you understand the full cost of the loan, or line of credit, and are comfortable with the terms.

After examining all your sources of income and reviewing your documents, some lenders use your total available credit to determine your credit eligibility when considering additional loans or lines of credit. So, even if you carry no balance on your accounts, have a large home equity line of credit can make it more difficult for other loans.

Rather than “playing it safe” by getting approved for the largest line of credit, evaluate, and try to predict, exactly what you will be using the credit line for, and set up the loan or line of credit for this amount.

Most times, the interest paid on a home equity loan or home equity line of credit is tax deductible. This is a primary reason that people often choose to use the equity in their home over credit cards or other types of loans. However, this is not always the case. Instead of assuming that you will see a tax deduction, we strongly encourage you to discuss how obtaining a home equity loan or HELOC will impact your tax situation with a professional tax advisor.

  • Copies of W-2s or tax returns for the previous 2 years
  • If you own rental units, provide the most recent rental agreement and tax returns for previous 2 years
  • Your last 3 bank statements along with the most recent statements for any mutual funds, IRA/401(k), or stock accounts
  • Settlement agreement and divorce decree (if applicable).
  • Non-U.S. citizens must present their Green Card or H-1 or L-1 visa.
  • Recent paycheck stubs and proof of any other income, like tips, Social Security payments
  • Your current mortgage note

These documents may not be all-inclusive, but by having these on hand, you will expedite the application.

Typically, home equity lines of credit carry a variable rate and not a fixed rate. The variable rate is based on some publicly accessible index, like the US Treasury Bill Rate or the Prime Rate, plus a margin. It is important that you understand what index is used as the interest rate basis of your HELOC, how often the index fluctuates and how high it has been in the last several years. Occasionally, a lender will offer a lower rate as an “introductory rate”, but the low rate is typically only low for a short period of time.

Home equity line of credit products are tied to your home, so by law, they are required to have a cap on how high the interest rate can climb over the term of the line of credit. Also note that some lenders also protect themselves against interest rate decreases when the index drops. It is important to read the fine details of your specific plan.

For approval, we must verify your credit, employment history, assets, property value, and anything else required by your particular circumstances.

FICO stands for Fair Isaac Corporation. This company is a pioneer and leader in credit scoring. Your FICO score is a number that tells creditors how likely you are to pay off your debts.

FICO and the credit bureaus do not disclose their exact computation methods. However, most credit scores are calculated through models that assign points to different factors of your credit history to best predict future performance. There are many commonly analyzed factors in your credit history, including:

  • Payment history
  • Employment history
  • How long you have had credit
  • How much credit you have used compared to how much you have available
  • How long you’ve lived at your current residence
  • Negative credit/financial events such as collections, bankruptcies, charge-offs, etc.

Raising a credit score is not always easy and not something that can be done overnight. There are several credit best practices that will raise your rating over time:

  • Pay your bills on time. This is extremely important. Collections and late payments can lower your credit scores.
  • Reduce your credit balances. Maxed out credit cards will lower your credit score.
  • Don’t apply for credit often. This reflects poorly on you and your rating.
  • Establish credit history.

Yes, errors and fraud should be reported to both the credit reporting agency that provided the report with the error or fraud, as well as the creditor that provided the erroneous or fraudulent information to the credit reporting agency. At this time, Experian and Equifax are only accepting disputes via their online forms. TransUnion handles disputes by phone, standard mail and an online form. We have provided you with information below to access these agencies per myFICO.com.

Equifax:
https://www.ai.equifax.com/CreditInvestigation/home.action

Experian:
http://www.experian.com/rs/fi4.html

TransUnion:
TransUnion Disputes
2 Baldwin Place, P.O. BOX 1000
Chester, PA 19022
1-800-916-8800
http://www.transunion.com/corporate/personal/creditDisputes.page

  • Identifying information — Social Security number, date of birth, employment information (these facts are not determining factors in credit scoring)
  • A list of debts — how many credit lines have been opened and closed, types of credit lines, a history of how you’ve paid them, loan limits, and current balances
  • Public record information — bills referred to collection agencies, bankruptcies, foreclosures, suits, liens, etc.
  • Inquiries made about your creditworthiness during the last two years — voluntary and involuntary inquiries.