Okay, so you want get a home equity loan — now what? Figuring out which lender to work with is more difficult. As you’ll soon find out, there are lots of options, including banks, credit unions, and many other companies.
So, how do you choose one?
The answer depends on your needs. How much money do you want to borrow? Who has the best interest rate? What level of customer service do you want? These are all factors to consider when choosing a home equity loan company. Below, we’ll take a look at some of the most common options and help you understand which type of loan company is the best fit for you.
1. Understand Different Types of Lenders
There are a lot of different lenders out there. We would recommend choosing a company with a national or regional reputation and one that specializes in making loans to homeowners. That way, you can be sure you’re dealing with a legitimate company that has some expertise and experience with this type of loan. Many of the largest banks in the country, such as Bank of America, Citibank, and Wells Fargo, offer home equity loans and HELOCs. There are also other national companies such as Discover, Quicken Loans, SoFi, etc. that make loans to homeowners across the U.S.
Beyond these national companies, there are also regional lenders that sometimes might offer better rates or better customer service. If you know of a regional lender in your area that is well-regarded for customer service, it is probably worth asking them about their offerings. Some people may prefer to work with a credit union, which is typically a local or regional entity that has membership from the community. Credit unions sometimes offer very competitive rates.
Also, don’t forget to consider a home ownership investment from a company like Unison which invests alongside you in the home. Instead of monthly payments and interest charges, they share in the appreciation whenever you sell the home in the future. You can learn more here.
2. Look for Online Reviews
Since taking out a home equity loan or HELOC requires entering a long-term relationship with the lender, it is very important to get to know them first. You should always look at online reviews prior to the signing on the dotted line. Here are a few sites to use:
- Better Business Bureau (BBB): The BBB acts as a clearinghouse for consumer complaints, which makes it a valuable resource for prospective customers to learn how a business really treats its customers. Use this website to learn what kind of complaints have been lodged against the company and how they have responded.
- Yelp: While not every business has a Yelp profile, it is always a good idea to check and see whether people have reviewed a company here prior to working with them. Yelp reviews can be very descriptive and very recent, which gives you a snapshot into how much customers like their interactions with the company.
- Glassdoor: This website lists reviews of companies written by the employees themselves (anonymously). If a company does not treat employees well, it may not be a company you want to do business with – and you can find out on Glassdoor.
Just remember, while reviews can be very helpful, they don’t always tell the whole picture. This should simply be one part of your research when choosing a company to work with.
3. Shop for the Best Interest Rates
It’s crucial to shop around for the best interest rate on your loan. Be sure to get a few different offers based upon your finances and credit score.
Once you have received a few offers tailored to your circumstances, you will be in a position to choose the one that offers you the best deal.
Keep in mind that even small differences in interest rates can result in large differences in how much you will pay over the life of the loan. The chart below shows a few examples for a 30-year mortgage, and while most home equity loans are shorter than 30 years, it is still sobering to see just how much difference there can be:
|Interest Rate||Loan Amount||Monthly Payment||Interest Paid in Total||Total Cost of Mortgage|
No matter who you go with when choosing a home equity loan, make sure you fully understand what you are getting into. Understand what is actually involved and weigh all benefits and risks. Also, make sure to read the fine print before signing up for a loan. You want to make sure the loan suits your needs, so shop around to find the right deal for you. A home equity loan or HELOC can be a useful tool, but it isn’t right for everyone and can sometimes result in problems for the homeowner. As with any financial product, it’s wise to proceed with caution.
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