Avoiding Home Equity Loan Scams and Pitfalls

Posted by EHL on Thursday, June 14, 2007 - 03:13 AM

A home equity loan is the choice of many consumers when in need of money for various reasons. Consumers need to be reminded that a home equity loan is a loan against what may be your single largest asset - your very home. In this world there are plenty of sharks looking for an easy meal, and a consumer in desperate need of money may make an easy mark.

The following are some of the things consumers should consider as red flags and warning signs when looking for a home equity loan.

If you are one of the millions already struggling to pay your bills but have equity built up in your home you may think you are a prime candidate for a home equity loan because of that equity. But be careful, you are taking out a further loan, and if you were having trouble paying the previous bills, you may not be able to keep up with the new payments owing. And for some lenders, this could be the plan.

There are some lenders who don't care if you can't repay the home equity loan. In fact that is their real goal, for you to fail to meet the legal requirements of the home equity loan - that is full repayment on schedule, so that they may foreclose or otherwise seek immediate monetary redress against you. So if you hear your lender saying that they will work with you if you fall behind, or that you should 'pad' your earnings on your initial application for the loan, you should be very suspicious.

Another thing consumers should be aware of when getting a home equity loan is fees or any other changes that are added on after the signing of the loan contract. You should always sign the loan contract after ensuring everything is clear up front and on paper. All contract terms should be clear to you, and a complete signed copy should also be in your possession. Be leery of any lender who doesn't make copies available to you. Do not sign any loan papers with blank sections or numbers to be filled in later.

Some things consumers of a home equity loan can do to arm themselves against scams and potential pitfalls include keeping complete and detailed records of all money spent on the loan. Don't depend on the lender to keep the records in order. Ask if insurance is a prerequisite to getting the loan approved. Don't wait for them to tack it on at the end and just expect you to accept the terms of the insurance. And above all else, never sign anything without knowing what each and every binding term means and entails. Ask a knowledgeable friend or co-worker to help you, and failing that, pay the fee to see an attorney or accountant.