The Center For Debt Management
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Need a Loan?
Think Twice About Using
Your Home as Collateral

... Continued From Previous Page

2. After Choosing a Lender

  • Negotiate. It never hurts to ask if the lender will lower the APR, take out a charge you don't want to pay, or remove a loan term that you don't like.
  • Ask the lender for a blank copy of the form(s) you will sign at closing. While they don't have to give you blank forms, most legitimate lenders will. Take the forms home and review them with someone you trust. Ask the lender about items you don't understand.
  • Ask the lender to give you copies of the actual documents that you'll be asked to sign as soon as possible. While a lender may not be required to give you all of the actual filled-in documents before closing, it doesn't hurt to ask.
  • Be sure you can afford the loan. Figure out whether your monthly income is enough to cover each monthly payment, in addition to your other monthly bills and expenses. If it isn't, you could lose your home — and your equity — through foreclosure or a forced sale.
  • If you are refinancing a first mortgage, ask about escrow services. Ask if the loan's monthly payment includes an escrow amount for property taxes and homeowner's insurance. If not, be sure to budget for those amounts, too.

3. At Closing

Before you sign anything, ask for an explanation of any dollar amount, term or condition that you don't understand.

Ask if any of the loan terms you were promised before closing have changed. Don't sign a loan agreement if the terms differ from what you understood them to be. For example, a lender should not promise a specific APR and then — without good reason — increase it at closing. If the terms are different, negotiate for what you were promised. If you can't get it, be prepared to walk away and take your business elsewhere.

Before leaving the lender, make sure you get a copy of the documents you signed. They contain important information about your rights and obligations.

Don't initial or sign anything saying you're buying voluntary credit insurance unless you really want to buy it.

4. After Closing

Having second thoughts about the loan? The Truth in Lending Act gives most home equity borrowers at least three business days after closing to cancel the deal. This is known as your right of "rescission." In some situations (ask your attorney), you may have up to three years to cancel. To rescind, you must notify the creditor in writing. Make sure you document your rescission. Send your letter by certified mail, and request a return receipt. That will allow you to document what the creditor received and when. Keep copies of your correspondence and any enclosures. After you rescind, the lender has 20 days to return the money or property you paid to anyone as part of the credit transaction and release any security interest in your home. Remember that you must then offer to return the creditor's money or property, which may mean getting a new loan from another lender.


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