Think about Your Options
If you're having money
problems, consider these options before you put your home on the loan
line.
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Talk with
your creditors or with representatives of non-profit or other
reputable credit or budget counseling organizations to work out a
plan that reduces your bill payments to a more manageable
level
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Contact
your local social service agency, community or religious groups, and
local or state housing agencies. They may have programs that help
consumers, including the elderly and those with disabilities, with
energy bills, home repairs, or other emergency needs.
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Contact a
local housing counseling agency to discuss your needs. Call the U.S.
Department of Housing and Urban Development toll-free at
800-569-4287 or visit
www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
to find a center near you.
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Talk with
someone other than the lender or broker offering the loan who is
knowledgeable and you trust before making any decisions. Remember,
if you decide to get a home equity loan and can't make the payments,
the lender could foreclose and you would lose your
home
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If you decide a loan is right for you, talk with
several lenders, including at least one bank, savings and loan, or credit
union in your community. Their loans may cost less than loans from finance
companies. And don't assume that if you're on a fixed income or have
credit problems, you won't qualify for a loan from a bank, savings and
loan, or credit union--they may have the loan you want!
Do Your Homework
Contact several lenders--and be very careful about dealing with
a lender who just appears at your door, calls you, or sends you mail. Ask
friends and family for recommendations of lenders. Talk with banks,
savings and loans, credit unions, and other lenders. If you choose to use
a mortgage broker, remember they arrange loans but most do not lend
directly. Compare their offers with those of other direct
lenders.
Be wary of home repair
contractors that offer to arrange financing. You should still talk with
other lenders to make sure you get the best deal. You may want to have the
loan proceeds sent directly to you, not the contractor.
Comparison shop. Comparing loan plans can help you
get a better deal. Whether you begin your shopping by reading ads in your
local newspapers, searching on the Internet, or looking in the phone book,
ask lenders to explain the best loan plans they have for you. Beware of
loan terms and conditions that may mean higher costs for you. Get answers
to these questions and use the
worksheet
to compare loan
plans:
Interest Rate and Payments
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What are
the monthly payments? Ask yourself if you can afford
them
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What is
the annual percentage rate (APR) on the loan? The APR is the cost of
credit, expressed as a yearly rate. You can use the APR to compare
one loan with another.
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Will the
interest rate change during the life of the loan? If so, when, how
often, and by how much?
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Term of Loan
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How many
years will you have to repay the loan? |
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Is this a
loan or a line of credit? A loan is for a fixed amount of money for
a specific period of time; a line of credit is an amount of money
you can draw as you need it.
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Is there
a balloon payment--a large single payment at the end of the loan
term after a series of low monthly payments? When the balloon
payment is due, you must pay the entire
amount.
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Points and Fees
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What will you have
to pay in points and fees? One point equals 1 percent of the loan
amount (1 point on a $10,000 loan is $100). Generally, the higher
the points, the lower the interest rate. If points and fees are more
than 5 percent of the loan amount, ask why. Traditional financial
institutions normally charge between 1 and 3 percent of the loan
amount in points and fees.
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Are any of the
application fees refundable if you don't get the loan? |
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How and how much
will the the lender or broker be paid? Lenders and brokers may
charge points or fees that you must pay at closing or add on to the
cost of your loan, or both.
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Penalties
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What is
the penalty for late or missed payments? |
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What is
the penalty if you pay off or refinance the loan early (that is, is
there a pre-payment penalty)?
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Credit Insurance
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Does the loan
package include optional credit insurance, such as credit life,
disability, or unemployment insurance? Depending on the type of
policy, credit insurance can cover some or all of your payments if
you can't make them. Understand that you don't have to buy optional
credit insurance--that's why it's called "optional." Don't buy
insurance you don't need.
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Credit insurance may
be a bad deal for you, especially if the premiums are collected
up-front at the closing and financed as part of the loan. If you
want optional credit insurance, ask if you can pay for it on a
monthly basis after the loan is approved and closed. With monthly
insurance premiums, you don't pay interest and you can decide to
cancel if the premiums are too high or if you believe you no longer
want the insurance.
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After you have answers to these questions, start
negotiating with more than one lender. Don't be afraid to make lenders and
brokers compete for your business by letting them know you are shopping
for the best deal. Ask each lender to lower the points, fees, or interest
rate. And ask each to meet--or beat--the terms of the other
lenders.
Once You've Selected a Lender, Get the Following
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A "Good Faith
Estimate" of all loan charges. The estimate must be sent within 3
days of applying.
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Blank copies of the
forms you'll sign at closing, when the loan is final. Study them. If
you don't understand something, ask for an explanation.
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Advance copies of
the forms you'll sign at closing with the terms filled in. A week or
two before closing, contact the lender to find out if there have
been any changes in the Good Faith Estimate. By law, you can inspect
the final settlement statement (also called the HUD-1 or HUD-1A
form) one day prior to closing. Study these forms. Write down any
questions you want to ask.
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Think Twice before You Sign
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Have a knowledgeable
friend, relative, attorney, or housing counselor review the Good
Faith Estimate and other loan papers before you sign the loan
contract. Be sure the terms are the same ones you agreed to. For
example, a lender should not promise one APR and then--without good
reason--increase it at closing.
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Refer to the list of
questions you've written down. Ask where these terms are covered in
the loan contract. And ask for an explanation of any dollar amount
or term you don't understand. Don't let anyone rush you into signing
the loan contract.
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Make sure all
promises, oral and otherwise, are put in writing. It's only what's
in writing that counts.
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Get a copy of the
documents you signed before you leave the
closing. |
Don't Sign on the Dotted Line if the Lender...
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Tells you to falsify
information on the loan application (for example, suggests that you
write down more income than you really have).
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Pressures you into
applying for a loan for more money than you need, or one that has
monthly payments larger than you can afford.
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Promises one set of
terms but gives you another with no good reason for the
change.
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Tells you to sign
blank forms or forms that aren't completely filled in. If an item is
supposed to be blank, draw a line through the space and initial
it.
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Pressures you to
sign today. A good deal today should be available
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Know that You Have Rights under the Law
You Have 3 Business Days to Cancel the Loan
If you're using your home
as security for a home equity loan (or for a second mortgage loan or a
line of credit), federal law gives you 3 business days after signing the
loan papers to cancel the deal--for any reason--without penalty. You must
cancel in writing. The lender must return any money you have paid to
date.
Do You Think You've Made a Mistake?
Has the 3-day period during
which you may cancel passed and you're worried that you've gotten in over
your head? Do you think your loan fees were too high? Do you believe you
were steered into monthly payments you can't afford? Has your lender
repeatedly pressured you to refinance? Is your loan covered by insurance
you don't need or want?
If you think you've been
taken advantage of, state and federal laws may protect you. Also, the
following organizations may be able to help:
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Your local or state
bar association--sometimes listed under "Lawyers Referral Service"
in the Yellow Pages of your phone book. The association may be able
to refer you to low-cost or no-cost lawyers who can
help.
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Your local consumer
protection agency, state attorney general's office, or state office
on aging, listed in the Blue Pages of your phone book.
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Your local fair
housing group or affordable housing agency, housing counseling
agency, or state housing agency.
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You can learn more about
credit and home equity loans by visiting the federal government's web site
for consumers,
www.consumer.gov
(see the Home
and Community section). If you don't have access to the Internet, ask a
friend or relative to get the information for you. Or visit your local
library or senior center, which may offer you free access to the Internet
on their computers.
For More Information
State Banks that Are Members of the Federal Reserve System
Division of Consumer and Community Affairs
Mail Stop 801
Federal Reserve Board
Washington, DC 20551
(202) 452-3693
Federally Insured State Non-Member Banks and Savings Banks
Federal Deposit Insurance Corporation
Consumer Response Center
2345 Grand Boulevard, Suite 100
Kansas City, Missouri 64108
(877) 275-3342
National Banks and National Bank-Owned Mortgage Companies
Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
(800) 613-6743
Federally Insured Savings and Loan Institutions and Federally Chartered Savings
Banks
Office of Thrift Supervision
Consumer Programs
1700 G Street, N.W., 6th Floor
Washington, DC 20552
(800) 842-6929
Federal Credit Unions
National Credit Union Administration
Office of Public and Congressional Affairs
1775 Duke Street
Alexandria, VA 22314
(703) 518-6330
www.ncua.gov
For state-chartered credit unions, contact your state's regulatory agency.
Mortgage Companies and Other Lenders
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(877) FTC-HELP (877-382-4357, toll free)
Other Information Sources
U.S. Department of Justice
Civil Rights Division
950 Pennsylvania Ave., N.W.
Housing and Civil Enforcement Section, NWB
Washington, DC 20580
(202) 514-4713
Federal Housing Finance Board
1777 F Street, N.W.
Washington, DC 20006
(202) 408-2500
Department of Housing and Urban Development
451 7th Street, S.W.
Washington, DC 20410
800-669-9777 (voice)
800-927-9275 (TTY)
Office of Federal Housing Enterprise Oversight (OFHEO)
1700 G Street, N.W.
4th Floor
Washington, DC 20552
(202) 414-6922
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