A home equity loan allows a homeowner to borrow money using the equity in their home as collateral. The equity consists of whatever funds were invested in the home at the time of purchase, principal from mortgage payments, improvements done to the house and any appreciation of the house value since purchase.

Advantages

A home equity loan is a secure loan because it is against a homeowner’s possession, and many lenders view them as relatively safe. Borrower’s are more likely to pay when their home is on the line, or in case of default payments a home can be easily seized since it can’t be relocated or hidden.

Not to be mistaken for a Home Equity Line of Credit (HELOC), which is a revolving line of credit with an adjustable interest rate, a home equity loan is a one-time lump-sum loan, usually with a fixed interest rate. Home equity loans typically have a lower interest rate than other types of loans.

Another advantage of a home equity loan is that they are tax deductible. Amounts of up to $100,000 are fully tax deductible no matter what you spend the money on.

Precautions

Before you apply for a home equity loan, it would help to ask yourself first: Do I really need this? Is there no other way for me to acquire the amount of money I need right now? Can I perhaps use my credit card instead? Am I willing to risk my home in case I fail to pay properly? Are my credit reports accurate? Can I manage my payment budget?

If the questions lead you to getting a home equity loan, that’s where you can take the first step.
Be aware, however, that there are scammers who cheat homeowners out of their property. It is important, therefore, to know well who you are dealing with, and that the deal is legitimate – get everything in writing and make sure you understand the terms clearly! You wouldn’t want to lose your prized possession out of your carelessness.

Be aware also of possible fees that may apply to your home equity loan. Some of these are appraisal fees, title fees, arrangement fees, closing fees, etc. Check for possible hidden costs. Like most loans, a home equity loan will have fees of some sort, so make sure you know about the fees that are charged.

It is always important to shop around for the best home equity loan. With the many options out there, take time to ask around for recommendations and advice or look around the Web.

To check what various home equity loan rates will mean for your monthly payments, there are websites that have a home equity loan calculator. Here you can compare offers from various lenders and brokers so that you can get the lowest rate possible.

So don’t take the first financial aid package you are offered, as there are a number of things to consider before finally choosing one. Falling into such mistake could still cost a student or parents a difference of thousands of dollars over the course of their college career. The following are simple steps to help a student decide on a college financial aid package.

How is the Aid Distributed Throughout College?

Parents and students should be watchful of college financial aids that are generous at the beginning or during freshmen year, but almost disappear in the subsequent years. To avoid this, rather than agree right away and walk away with the aid, it is always wise to ask for a signed assurance protecting or at least limiting price increases in the financial aid for the duration of a student’s college life.

What Does the Aid Cover?

Always look into the amount of financial aid in relation to what it covers. Maybe School A offers you a substantial amount of student aid but it covers only the tuition and room and boards. No provision is given for other expenses such as books, supplies, transportation, meals or even health insurance. But School B offers slightly lesser financial aid but is covering the entire cost of the college attendance. If the difference in the amount of the financial aids between School A and School B is less than what it would cost to buy the college necessities not covered by School A, it might be better to accept School B’s subject to other consideration.

Gift Aid Vs. Self-Help

Scholarships and grants are financial aids that are classified under gift aids or free money, while loans and work study are financial aids that are categorized under self-help.

Among all these options, loans should always be the last resort. But if you do, thoroughly look at the interest charges of the available student loans, or even the presence of hidden charges. This step proves practical especially if a student doesn’t qualify for the low-priced federal loans such as Stafford or Perkin loans. A number of financial experts advise that if a student wants a total debt upon graduation that is less than their first expected salary, borrowing should be limited or at least the student should bargain for the lowest interest rate possible.

Many students unfortunately have no other choice but to resort to borrowing because aside from the financial aid not being able to keep pace with the skyrocketing tuition increases, they or their families have not been saving or have not prepared way before college.

However, there’s no further excuse not to save. Parents or students should not rely entirely on what the financial aid will provide them or their kids. There are plenty of opportunities to chip away even 50% or 20% from the total cost of the tuition by a wide array of saving strategies. This is a great way you can ease up future college expense debts.

So before you place a “For Sale” sign on your front lawn, take the time to learn from experts, read on the current market and real estate trends, and most of all, know what you should avoid doing in order to land the best deal for your home.

Here are common mistakes that many home sellers make:

1. Not knowing what buyers want.
Stepping inside the shoes of a buyer is always a helpful tip for any seller. Imagine that you are the buyer of the home you are selling. Would you buy it? Does it look nice, clean, and built to last? Is the price reasonable? Is there anything that’s lacking? Once you train yourself in this perspective, you will learn to ask yourself all the helpful questions that would make your home appealing to many buyers.

2. Getting the wrong real estate agent.
Many sellers fall victim into the hands of the wrong agent. Take time to look for the ideal and trusted one. Ask around. Once you have narrowed down your choices, compare them in terms of track record and their list-price to sell-price ratio. Ask how them how they are going to market your home and set it apart from similar listings in your area. You deserve an agent who can sell your property to the right buyer at the best deal.

3. Poor listing and advertising.
If you present your home to prospective buyers over the Internet, present it in the best way possible. Take lots of great photos of your home, possibly every area. This is your first chance to invite the buyer to take a peek inside your home. If there are areas, furniture and fixtures that need repair or replacement, do it early. A complete overhaul is not necessary, a refreshing appearance will do. Check if the walls need repainting, if the yard needs trimming, if the bathrooms need new accessories, if the living room needs rearrangement, and so on. See your home with fresh, new eyes so that you will be able to advertise it well and compete against other similarly-priced homes.

4. Failing to Offer Incentives.
There are lots of homes on the market right now, so you need to make yours stand out. Lowering your asking price is one way to help buyers take notice. Other perks such as a home warranty, a $1000 painting or flooring allowance or pay a year’s worth of dues at a local golf or swim club can sway a buyer your way.

5. Overpricing and non-negotiability.
Buyers go to websites such as Zillow.com and Trulia.com to get an automated and estimated pricing of properties. If your listed price is way too high compared to the valuation results, the buyers would most likely look for other properties. In order to avoid this, look around for similar homes in the area and find out how much they were sold. Keep your price reasonable and close to comparable homes in your area. Be open for negotiation even if you get a low ball offer, by giving a realistic counter-offer. This way the real negotiation can begin.

In recent years, college costs are rising at a pace much faster than the nation’s overall inflation rate. Because many colleges are seeing a decrease in student enrollment, they are willing to inject more options in the financial arrangement between them and the student. This is a great opportunity for anyone who wants to finish a degree but is limited by the family’s meager financial resources.

Start early

It is no secret that the best time to start saving for college is upon birth of the future student. Thinking ahead and investing early not only means more money set aside but also a vast time frame to adopt a more aggressive saving strategy. So if you’re a parent with young children, you might want to start saving now rather than wait for your kids to graduate from high school and become stressed on how to produce the skyrocketing college tuition.

Hone your child’s potentials and acquire scholarships

Early on, discover your child’s strongest skills and talents. As soon as you do, motivate the child and help him or her develop in that area. There are a number of colleges and universities that offer scholarships in specialized areas, be it in sports, the arts or in the sciences. Therefore, the chance of getting a cut in tuition costs is high with such strategy. However, it is important that a child and a parent are aligned in their plans and interests in order for both the child’s future college life and financial strategies to succeed. If a child is pushed by a parent to enroll in a course that he is not interested in, even if he excels in that area, there’s a chance his studies will be affected, or worse, he will quit and pursue what he always wanted. As a result, a substantial amount of money will be wasted.

Negotiate further into the school’s financial aid

Be smart and get in-depth knowledge of the financial aid available or being offered by a school. When a package is vague, consult a school authority who could help you understand the terms and tradeoffs in it.

However, if a financial aid package proves to be an unfair deal, you can always call the school aid office to bargain for a higher aid amount. At this unfortunate time of continued tuition increases, where demand for more financial aid is shooting up, more and more schools are restricting the amount of aid being extended. However, as long as you have valid reasons and can strongly convince the school on why you need more financial aid, there’s always a good possibility that it will be granted. For example, a new set of financially-pressing circumstances started springing up around the family (family illness, unexpected job loss, another child going into college, etc.) during your child’s college years and you need to find ways in order for your child not to quit his education. You can always relay these facts to the school as a back-up for more aid. If your child excels in the chosen field, you may tell the school that another school has offered more aid, which hopefully they can match. If the student is really good, then chances are they will expand the offer.

Work study

Work study can ease up a lot of tuition money for the cash-strapped students or for those who simply want to save more money. There are available campuses or state-funded programs in different colleges, which are given on a need-basis. These jobs typically involve community service.

Students may still find enjoyment in working while studying though. For example, they can take on part-time jobs that are related to their college courses. Those who are into communication courses may do part-time writing jobs. Those who are taking arts in college may teach kids on how to paint or dance during weekends. This way, they are not only generating additional funds to sustain their education, they are also enriching their college life by feeding their passion and thirst for knowledge. There’s less stress in doing a job that one loves for a fee than simply doing a job for a fee. The result is always an enhanced well-being.

Shop wisely

Successful students can learn how to be happy with simple things especially in the face of limited financial resources. Saving enough money to fund college education is a futile measure if substantial amount goes to expensive clothes, a brand-new car, frequent night-outs with classmates, and other frivolous expenses. College life is never made colorful by wearing signature items but by one’s small and big successes after exerting effort of every noble kind.

Unless a student is truly wealthy, utmost discipline is necessary in handling his college expenses from the time a financial aid is secured up to graduation or until one settles all college financial obligations, if any.

Not Researching How Much House You Can Afford

Before you search the Internet and fall in love with kitchen layouts and neighborhoods make sure to talk to a qualified lender and get preapproved for a mortgage. Preapproval helps you focus on homes you can afford. It also makes you more attractive to a buyer because nothing is more frustrating to a buyer or seller than when a deal falls through due to lack of financing. The rule of thumb is to keep your basic monthly housing cost at or below 28% of your monthly gross income (before taxes and other deductions). Basic monthly housing costs include your mortgage payment, property taxes and homeowner’s insurance.

Underestimating the Cost of Owning A Home

Many new homeowners fail to realize the additional cost of repairs and upkeep to a home. Things can and will break over time, so consider the age and condition of a home before purchasing. Owning a home means increased utilities and items you never needed as an apartment dweller such as a lawnmower and ladder. It is a good idea to set aside roughly 0.5 to 1% of the purchase price every year for repairs and upkeep.

Failing to Find a Good Realtor

Navigating the path to homeownership is tough even for experienced buyers, so finding a good licensed real estate agent representing only you, the buyer, is important. Ask friends, family and co-workers for a recommendation. Make sure the agent has access to the Multiple Listing Service (MLS), a service that lists all homes for sale by most major brokers across the country. Commissions average from 5% to 7% of the selling price of the home and are split by the seller’s agent and buyer’s agent. Be wary of agents that try to sell you their own listing since they will earn the entire commission and will have to look out for not only your best interests but the sellers as well.

Assuming Foreclosures Are a Great Deal

Price-conscious first-time homebuyers are looking for a great deal and a foreclosure may sound like a good place to start. But just because a home was worth $350,000 when purchased 4 years agao, it doesn’t mean it is worth that much now. Home values have dropped an average of 19% across the country, with some areas like Phoenix, experiencing a whopping 49% drop. Keep in mind most foreclosed home have been vacant for months and are sold “as is” sometimes with no chance of inspection. You run the risk of the former owner not fixing something that breaks or vandals coming and vandalizing the home. Weigh the costs of fixing the home versus how much money you’ll save buying a foreclosure.

Upgrading Too Much Too Fast

You may have found the perfect house, but hate the kitchen counters so you spend $3000 to have granite installed. Then there are the new ceiling fans, blinds and paint. It quickly adds up but you justify it by thinking it will pay for itself by increasing the home’s value. That is not always the case in today’s volatile market. The best thing is to make a few changes every year so you don’t over extend your wallet.

What is a Mortgage?

A mortgage is an evidence of a debt incurred.  A borrower pledges his property in exchange for money borrowed.  Full ownership of the said property is then awarded to the borrower upon full payment of the loan plus all other agreed interest charges.

A mortgage has two main components:  the loan and loan servicing.  These two can be sold either as a whole or separately, with the latter component usually staying with the original lender.

Sale of a Mortgage

Mortgage companies have the right to sell and transfer any of their mortgages on hand to another entity, whether local or international.  This transaction is called secondary mortgage selling.  The original mortgage company benefits from this sale by recovering their capital (the monies lent to the borrower), eliminating the risk of non-payment on the borrower’s part and profiting a little bit from past interest payments and any other amount tagged on to the original capital upon the sale.

A loan-servicing sale is more complicated than the ‘loan sale’ described above, however.  For one, it involves more steps and documentation.  First, your original mortgage servicer should publicly disclose his intention to immediately sell the servicing of the loan, the percentage of the servicing that he intends to sell and whether the option to sell is available to him throughout the life of the mortgage.

What Does This Mean to You?

When your mortgage is sold to the secondary mortgage market, nothing much should change.  Basically, it should only mean a change in the payment address.  None of the original terms, conditions and rates will change.  You should expect to receive a notification from both mortgage companies.  The original lender should inform you in writing about the sale or transfer as well as the details of such sale or transfer.  The new owner of the mortgage, on the other hand, should also inform you that they are now officially handling your account; you will also be informed of whatever changes have been made to payment arrangements, including payment address changes.

Due to the change in address and a possible delay in receiving the letter informing you of the transfer, there is a 60-day grace period where the new owner of the mortgage cannot charge you for paying late or for non-payment.  The automatic assumption is that you may have mistakenly sent the payment to your original service provider.

Benefits of a Secondary Mortgage Transaction

The sale of mortgages from one company to another benefits you and all other borrowers.  First, the original holder of the mortgage gains back his capital and some more, therefore becoming capable once more of lending money to another person in the market for a new home.  Second, this continuous flow of loans keeps mortgage bankers liquid and helps maintain mortgage rates at a minimum.

Protection Against Fraud

The RESPA or the Real Estate Settlement Procedures Act is a law that oversees the rules and procedures for the servicing of a loan.  A servicing company is defined as the entity to which a borrower makes payments.

Low Fixed-Rate Loan

This option is best for people seeking to get a lower interest rate than what they are currently paying.  Procuring this type of refinancing option is best when market conditions lead to a sudden drop in mortgage rates.  Another reason to refinance to a low fixed-rate loan is when you currently hold an ARM or an adjustable rate mortgage, and you are worried about soaring interest rates in the near future.  If the index rates on which your adjustable rates are pegged continue to rise, your mortgage rates will rise along with it.  Note that adjustable rates are the sum of a specific index rate and a nominal rate charged by the lender, subject to a specific cap rate.  To prevent this from happening, you may want to grab the opportunity of securing a low fixed-rate now and enjoy it for the rest of your paying years instead of being made to pay higher and higher interest every year.

Cash-out or Cash-back Refinancing

A cash-back or cash-out refinancing option is the choice of people who are in need of additional cash on top of what they need to pay back their existing mortgage.  The extra cash can be used either for investment or for paying off other outstanding debts.

Shorter Term Loan

If your main goal is to immediately build equity and get rid of your debts sooner, a shorter term loan is the right refinancing option for you.  Keep in mind, though that shifting from a 25-year to a 15-year term will lead to higher monthly installments so make sure that your monthly income can cover this.  If you think it’s a little too much for you since your disposable income will be cut into half, just think about the fact that when you refinance to this kind of loan, you actually pay less interest in the long run and you can declare that you are debt-free much sooner.  There is also the benefit of a higher tax shield due to the higher monthly amortization.

Longer Term Loan

The opposite of a shorter term loan, a longer term loan gives the homeowner more time to pay for his mortgage and reduces the amount of amortization required every month.  This loan fits people who have suddenly lost their job or have need of more cash every month (say, new parents).  Their goal in refinancing is to have extra money today to provide for other needs regardless of the losses they incur (specifically the accrued interest payments in the long run).

Knowing your goal in refinancing is the key to identifying which type will best suit you.  It is important that you examine your existing mortgage first, compute your combined monthly household income and set a limit as to what amount is deemed acceptable and what is not.  Determine the long-term effect of refinancing instead of focusing only on immediate benefits – then and only then should you decide.