An old Motown song advised "You Better Shop Around."  Apparently, the U.S. Government feels this is good advice for people seeking home equity loans. The Federal Trade Commission (FTC) offers a "Consumer Alert" which details how a borrower should go about shopping for a home equity loan.

 As homeowners build equity in their homes, they often turn to fixed rate home equity loans as a means of accessing some of that accrued investment. Another alternative is a home equity line of credit, or HELOC. In either case, there are many potential lenders, and the FTC Consumer Alert can help you make sense of the evaluation process.

 Key Points for Evaluating Home Equity Loans

The FTC advises borrowers to do the following when shopping for a home equity loan:

• Comparison shop among multiple lenders. Do some research, rather than just passively responding to offers that come your way. It may well be better to find a home equity loan rather than letting one find you.
• Ask questions to make sure you completely understand terms and conditions. There can be quite a bit of specialized jargon associated with home equity loans and HELOCs, so don't be shy about making lenders explain the language to you.
• Carefully review all fees. There are several layers of fees associated with these loans, so make sure you understand the total of all costs for loans on a consistent basis.
• Know your credit score. Make sure that your report is accurate and resolve all discrepancies before applying for any mortgage.
• Negotiate with multiple lenders. It's a competitive business, especially given the amount of information available online. Use that to your advantage to negotiate the best terms on your loan.
• Never feel too pressured to read the closing papers carefully. Make sure that everything that has been agreed to verbally is reflected in writing. 

Remember, there are two characteristics of home equity loans and HELOCs which should make you approach the evaluation process very seriously. First, these loans generally have terms of several years, so whatever you agree to is something you may be living with for a long time. Second, these loans are secured by your home, so you'll want to be positive that you can meet the terms and conditions of the loan.

Keeping Score

If all of the above seems like a difficult amount of information to keep track of, you can use a comparison scorecard offered by the FTC. The scorecard is set up to let you do side-by-side comparisons of multiple lenders, using some of the key criteria listed above.

Whether it is a home equity loan or a HELOC you are after, the fees and interest charges involved can make a huge difference in the total cost of the loan. Comparison shopping is one way to control those expenses. No matter how inexperienced you might be with this kind of borrowing, a little help from the FTC will can help guide your through the process.

 Source: 

Federal Trade Commission Consumer Alert