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
Here are some helpful tips to ease the process for you:
- Be well-prepared and organized from the
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.
- 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
- 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.
- 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.
- 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.
- 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
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.