2. Paying for an appraisal when you think that the house may appraise too low.

Have the appraisal company do a desk review appraisal (typically at no charge) to provide you with a range of possible values. Your mortgage company can ask their appraiser to do this for you. Do not waste your money on a full appraisal if you are doubtful about the value of your house.

3. Using the county tax assessors value as the market value of your house.

Mortgage companies do not use the county tax assessors value to determine whether they will make the loan. Instead they use a market value appraisal which may be very different from the assessed value.

4. Signing your loan documents without reviewing them.

Do not sign documents in a hurry. Whenever possible try to get documents that you will be signing ahead of time so you can review them. It is advisable to ask for a copy of all loan papers you are signing a few days ahead of the close of escrow. This way you can review them and get your questions answered. Do not expect to read all the documents during the closing. There is rarely enough time to do that.

5. Not providing documents to your mortgage company in a timely manner.

When your mortgage company asks you for additional paperwork - jump on it! Do not complain. They are trying to get you approved, not trying to hassle you unnecessarily! Jump through the hoops as quickly as possible. Many borrowers do not respond to documentations need quickly and can wind up paying higher rates if the rate lock expires.

6. Pulling cash out of your credit line before you refinance your first mortgage.

Many lenders have "cash-out" seasoning requirements. This means that if you pull cash out of your credit line for anything other than home improvements, they will consider the refinance to be a "cash-out" refinance. This leads to much stricter requirements and can in some cases break the deal!

7. Getting a second mortgage before you refinance your first mortgage.

Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company if getting a second will cause your refinance to get turned down.

9. Getting too large a credit line.

When you get too large a credit line, you can get turned down for other loans, because some lenders calculate your payments based on the available credit and not just the used credit. Having a large equity line indicates a large potential payment, which makes it difficult to qualify for loans. Note : this argument holds even if you equity line has a zero balance.

10. Not understanding the difference between an equity loan and an equity line.

An equity loan is closed i.e. you get all your money up front and then make fixed payments on that loan, till you pay it off. An equity line is open i.e. you can get an initial advance against the line and then reuse the line as often as you want during the period that the line is open. Most equity lines are accessed through a checkbook or a credit card. On equity lines, you only pay interest on the outstanding balance. Use an equity loan when you need all the money up front e.g. home improvement, debt consolidation.

Use an equity line if you have an ongoing need for money or need the money for a future event e.g. you need to pay for your child's college tuition in 3 years.

11. Not checking the lifecap on your equity line.

Many credit lines have lifecaps of 18%. Be prepared to pay payments at higher interest levels if rates move upwards.

12. Getting a home equity loan from your local bank without shopping around.

Many consumers get their equity line from the bank that they have a checking account with. Use your bank, but shop around first.

13. Assuming that your home equity loan is tax deductible.

In some instances your home equity loan is NOT tax deductible. Some reasons for this may be : you make too much and fall into the AMT trap, you have pulled out more than $100,000 cash from your home. Do not depend on your mortgage company regarding this matter - check with an accountant or CPA.

14. Assuming that a home equity is always cheaper than a car loan or a credit card.

A credit card at 6.9% is cheaper than a credit line at 12% even after the tax deduction. To compare rates compute the effective rate of your home equity loan, with the rate on a credit card or auto loan.

Effective rate = rate * (1 - tax_bracket)
Example : If the rate of the home equity loan is 12% and your tax bracket is 30% your effective rate is : 12% * (1-0.3) = 12%*0.7 = 8.4%

If your credit card is higher than 8.4% then the equity loan is cheaper, otherwise it is not. Besides the interest rate, you may also want to compare monthly payments and other terms of the loan.

15. Getting a home equity line of credit if you plan to refinance your first mortgage in the near future.

Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company if getting a second will cause your refinance to get turned down.

16. Getting a home equity line to pay off your credit cards if your spending is out of control!

When you pay off your credit cards with your equity line, don't go out and charge up those credit cards up again and put your house on the line! If you can't manage the plastic tear it up!

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