Be prepared when applying for a home equity loan or home line of credit

If you own a home and you need money, an equity home interest loan is a viable option.

Lenders like home equity loans because there is very little risk to the lenders.  Why?  Because if you don’t pay, the money to pay off the loan comes out of your house.  An equity home interest loan is often a much better solution than credit cards.

There are two main types of home equity interest loans:

1.  Lump sum home equity loan:

you borrow a lump sum that is paid off over a stipulated period of time.  Usually the interest rate is fixed.

2.  Home equity line of credit:

A line of credit is where you have credit available to you that you use and pay back.  For the first stipulated period you pay only interest.  Then at some point, the line of credit becomes an amortized loan you pay off over the second period of time.  You don’t actually need to use the money; it can simply be available to you if you need it.  The interest rate typically fluctuates with a home equity line of credit.

An equity home interest loan is best when you need a particular sum of cash for a purpose that you plan to pay off over a period of time.  A line of credit is useful to have as an emergency pot of money.

Qualification critera

A lender’s primary concern when evaluating a home equity interest loan application is whether the loan will be paid back.  Therefore lenders require a lot of information about you, your circumstances, and your financial circumstances when deciding your home equity loan application.

When you apply for a home equity loan, lenders consider the following criteria:

• Age
• Credit score
• Employment situation and history
• Income – past and present
• Household expenses
• Savings, including retirement savings
• Loan to value ratio
• Amount of equity in your home

Age

A lender needs to know what stage in life you’re at.  Each stage brings risks to a lender.  Yes a home equity loan / line of credit is secured with the home; however lenders much prefer you pay back the loan rather than having to force a sale.

Credit Score

You’ll hardly find any type of credit application that doensn’t look at your credit score.

Employment situation and history

Naturally your income will pay off the equity home interest loan.  Although employment history isn’t always indicitive of employment stability, lenders look for employment stability and place weight on it when assessing a loan application.  Also, your present employment is reviewed – is it temporary, a contract position, how long have you been at the job, etc.  The lender simply wants to be assured your employment is secure.

Income – past and present

A lender needs to know you can actually pay off the loan you seek.  Your ability to pay off a loan amount is primarily dictated to how much you earn.

Household expenses

If your expenses exceed or match your income, a lender will likely refuse your loan because you don’t have any extra funds to make payments.  Again, lenders much prefer that your loans be paid off rather than having to extract repayment from your home.

Savings, including retirement savings

Obviously if you have plenty of savings and investments, you’re more secure.  Even retirement savings protected from bankruptcy is a plus because equity home interest loan lenders know you’re likely to dip into retirement savings to prevent selling your home.

Loan to value ratio

This ratio is the amount of debt on your home to the value of your home.  For example, if you owe $30,000 on your home that is worth $100,000, your loan to value is 30.

The amount of equity in your home

The loan to value gives a percentage.  A home equity loan lender also needs to know if the amount of equity (home value less amount owing) is enough to pay back the loan.  In other words, a low HTV won’t get you a loan greater than the equity in your home.  Using our HTV example, which is a low HTV, doesn’t mean you’ll be approved for a $150,000 home equity loan.  The reason is because your home isn’t worth $150,000.

Which brings me to my final point; your prospective lender will want a recent appraisal of your home.  As you can see, the value of your home is a very important factor when assessing any type of equity home interest loan.

Making this mistake will cost you with a higher car loan interest rate

Very few people can afford a car with out an auto car loan.  After all, a car is one of the biggest purchases we make in our lives.

Getting an auto car loan isn’t so bad if you do it the smart way.

The auto car loan mistake that will cost you money is not doing your homework and being prepared. If you don’t do your homework and get prepared, you will pay for it with a higher car loan interest rate or choose the wrong financing option.

Follow these steps before applying for an auto car loan

1.  Get a copy and review your credit report

Review your credit report and know your FICO score.  Any auto car loan lender your approach will check out your credit score.  Know what your score is so you know what the lender knows.  Your FICO score will dictate whether you get a loan, and if so, the terms, especially the interest rate your receive.

Get a copy of your current credit report from the major credit rating organizations:

• Equifax: PO Box 740241, Atlanta, GA 30374; www.equifax.com
• Experian: PO Box 2002, Allen TX  75013, www.experian.com
• TransUnion: PO Box 2000, Chester, PA 19022; www.transunion.com

2.  Get pre-qualified for an auto car loan before you shop

You need to know how high much you’re willing to spend before shopping for a car and negotiating with a dealer.  More specifically you need to know how much you qualify to borrow.  Why?  So when you’re presented with the terms (interest rate, fees, cash back options and duration), you’ll be able to choose the best deal in the long run.

Also, dealers often offer a lower sticker (i.e. purchase price) if you opt for the dealers financing.  The lower price may benefit you in the long run.  Also, you can refinance the day after you sign the dealership loan agreement.

Being pre-qualified give you negotiating strength.  Because you have financing from a source independant to the dealer, you can walk away and shop elsewhere until you get the best deal.

3.  Calculate the total cost of every car loan interest rate option

You’ll likely encounter low interest rate options with no rebate and rebate options with higher interest rates.  Don’t guess which auto car loan interest rate is best.  Crunch the numbers and see which auto car loan interest rate plan results in the lowest cost to you in the long run.

For example, on the face of it a 0 percent loan may seem the best deal.   However, if can choose a $2,000 rebate while financing at 4% you’re better off choosing the rebate plan.  You’ll pay $30 less on each payment and save $1,100 over the 0% loan.  The point is you need to learn all your auto car loan otpions and then crunch the numbers.

4.  Go to the auto dealership prepared

Go with a notepad of paper and a calculator.  If you have a laptop, take it and you can access our loan calculator in the right sidebar of this site.  You can quickly calculate the best deal and know how much you’ll pay in the long run.  Don’t let the salesperson control the calculations.  Do your own so you understand the options very well.

5.  Understand the advantages and disadvantages to you of buying versus leasing before you shopping for a car

Be prepared to be offered lease options.  Lease options may sound very attractive, but if you haven’t considered a lease compared to buying before you go, you may make a snap decision you’ll regret.

A car is an investment.  Yes, it depreciates; I know that.  However, it costs a lot of money and it is an asset in the sense it’s your transportation.  The transportation benefit is your car’s return on investment.  Don’t approach it lightly – research your car purchase and auto car loan and interest rate options carefully and follow these steps before getting an auto car loan before buying.

Subsidized and unsubsidized student loans

There are two main types of student loans in the USA (and in many other countries): unsubsidized and subsidized student loans.

Caution: you must still pay back subsidized student loans – they aren’t grants, bursaries, gifts, or scholarships.

Subsidized student loans are advantageous because you don’t pay interest or make payments until 6 months after leaving school or reducing your credit load to part time status.  Interest is charged, but the government pays the interest – hence it being a subsidized loan.

Unsubsidized student loans, on the other hand, rack up interest while you’re in school.  Those interest charges over a few years while in school can add up to a decent amount of money.   Note that some unsubsidized loans will defer payment until 6 months after leaving school, but the interest still acccrues while in school.

The prirmary student loan vehicle is a Stafford loan.  There are two types of Stafford loans:

1. Federal Family Education Loan Program (FFELP) loans are provided by private lenders, such as banks, credit unions and savings & loan associations. These loans are guaranteed against default by the federal government.
2. Federal Direct Student Loan Program (FDSLP) loans or “Direct Loans”, administered by “Direct Lending Schools”, are provided by the US government directly to students and their parents.

A Stafford loan can be either subsidized or unsubsidized.

How to get a FFELP or FDSLP student loan in the USA?

A fundamental part of a subsidized student loan is you must be or will be registered and attending school such as college or university.  The subsidized type of Stafford loan is given according to financial need.

You apply for a Stafford student loan using the Free Application For Student Aid (FAFSA).

Some important FAFSA points:

• If you need funds for school, apply regardless what you think your chances are.  Even if you didn’t qualify in previous years, apply each year because you never know; you may become eligible.  If you need funds, a subsidized student loan is the best loan option.
• Tax Returns:  Ensure you and your parents (if a dependant) complete your tax returns before completing the FAFSA.
• Dependant vs. Independant:  Determining whether you are a dependant or independant will affect how much subsidized student loan funds you’ll receive.  Go through the Dependancy Status Worksheet carefully.
• Deadlines:  Review the FAFSA deadlines carefully.  ALSO review your state deadlines – they may differ from Federal deadlines.

Differences between a unsubsidized and subsidized student loans

• Interest accrual:  for subsidized loans, interest is paid by the government while in school.  This means interest charges don’t rack  up while in school.  Many unsubsidized loans don’t require payments while in school (called deferred payment), but do accrue interest charges while in school.
• Credit check:  subsidized does not require a credit check; whereas some unsubsidized student loans require a credit check.  Most students don’t have established credit making a credit check a hassle and possibly a barrier to approval.
• Eligibility:  subsidized student loans are awarded based on financial need; whereas other factors such as credit record are considered for unsubsidized loans.
• Borrowing limits:  the subsidized student loan caps are lower than unsubsizidized.
• Repayment:  if you need to defer making payments or a break (called a forbearance), and you qualify, interest will not accrue during the forbearance with a subsidized student loan, whereas interest does accrue during forbearance with an unsubsidized loan.

As you can see, being awarded a subsidized student loan has significant financial benefits.  Just remember, subsidized loans are still loans, which means one day you’ll be paying them off.  They aren’t grants, gifts, bursaries, or scholarships; instead they are real loans.