Heloc Loan Secrets the Banks Don’t Want You to Know (Confessions of a Former Underwriter)

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Just like any other profession, underwriters follow a standard set of policies and procedures when examining a Heloc loan file; and just like any other profession, there are exceptions to the rule and judgment calls open to the underwriter. So, if you approach your mortgage professional knowing a little about the process, you’ll likely get a better outcome every time.
 
Here are some helpful tips to ease the process for you:
  1. Be well-prepared and organized from the start. An underwriter’s job is to assess your risk to their institution (risk of paying late consistently and possible default), so you’ll want your file to represent you as a responsible, conservative, and risk-averse person.
  2. If that’s not you, hire a professional. In the industry, it’s called ‘packaging the deal,’ and it’s exactly as it sounds; the ‘dressing up’ of your financial and personal story to help the financial institution or private lender feel comfortable that they’ll get their money back at some point in the future.
  3. Pay off ‘straggler’ credit cards. Most people have multiple credit cards, Visa, MasterCard and various retail store cards. In accessing your deal, the underwriting process assumes that all of those cards are at their maximum; after all, that’s the potential risk. If you can, close any unused or small balance cards before applying, or volunteer to close them as part of the approval for your Home Equity Line of Credit. Also, avoid opening any new credit cards or applying to multiple companies for your Home Equity Loan; multiple recent entries on your credit bureau can brand you in the underwriter’s eyes as a ‘credit seeker,’ someone desperate for more credit.
  4. Read (and understand) the fine print! Low interest rates are important, but the mortgage terms can be costly if you’re not careful. A seasoned mortgage broker will be invaluable to this part of the process, as credit products are not all the same. Watch for early payoff penalties, insurance requirements and limitations to frequency of payment.
  5. Make your payments bi-weekly!Insist on paying bi-weekly without a re-ratio of your payment amount. In other words, if your monthly payment is $500, you should choose to pay $250 every two weeks; in effect making extra (and early) payment towards the principal. Over the long term, this will save you thousands in interest and shave years off of your payment horizon.
  6. Shop the Insurance. If the lender insists on the deal being life insured, do not also assume it has to be with their institution. A life insured home equity mortgage relieves some risk on the lenders part, so shop for a rate-comparable term life Insurance policy for the duration of the loan. Remember, mortgage life insurance is a very profitable product for lenders.
Know your limits beforehand when considering a Heloc loan. Since the best advice is always common sense, take some time to map out your current household budget, and then use a mortgage calculator to estimate your monthly payments at various credit levels. You‘ll want to be realistic with your initial application amount, so the lender will see you’re both level-headed and responsible with what you can afford. 


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