Home Equity Scams and How to Avoid Them
Getting a home equity loan can be very beneficial, especially if you are in pretty bad financial condition. You can use your loan to pay credit cards and other debts. There are a lot of scams in this kind of transaction that you should be wary of. Learning the difference between legitimate practice from the illegitimate ones is the best thing you can do to protect yourself from being a victim.
The Basics of Legitimate Home Equity
Getting this kind of loan involves getting a personal loan and securing it with your home’s equity. There could be a variation in the amount that you can borrow from the company. It all depends on their evaluation of your request. Generally, you can get a loan that amounts up to your home’s equity. Lender will have to review your income and credit records to make sure that you qualified for the amount you are requesting.
Different Kinds of Scams
There are various prominent scams circulating online and offline. A lot of them entrap unaware borrowers. Here are some of them.
Balloon Payment
This kind of scam would usually involve hiding the terms of the loan. In scams like this, if you are about to face foreclosure because of your lack of ability to keep up with your monthly loan payments, you may be contacted by another lender that would offer you their rescue.
Schemes like this will pose low interest rates to entice you. Nevertheless, payment to the home equity loan in instances like this would only involve paying toward the loans interest. As you complete your loans term, you are expected to pay the entire principal amount in a lump sum. If you fail to do so, your load would be foreclosed. Your home would be taken by your loan lender.
Equity Stripping
In this kind of tactic, the lender will let you get the loan. Although they may conduct screening procedures on whether you are capable of paying for the loan on a monthly basis, everybody would pass the test. Everybody means even those who do not have the ability to pay.
Why do they do this? Simply because they really do not care if you can pay or not. What they want to happen is that they would end up with your property. They have bad intentions even form the beginning. Helping you out with a loan is just a disguise. The truth is they want your property that bad that they let you get your loan. Hence, once you are not able to pay, your loan gets foreclosed. You can say goodbye to your property.
Loan Flipping
This is another popular practice. If you have had a mortgage running for quite a number of years already and you want to get a little extra cash, you may be offered what you want through a refinancing option.
Once you start with their refinancing option, and after you have made a few payments on the loan, the lender would call you. More likely, they will offer you a bigger loan in exchange for a large expenditure, such as a grand vacation.
In effect, you would opt for this new offer. What you do not know is that every time you refinance, your debt simply grows bigger; due to the rising fees and points on every refinancing.
Home Improvement Loans
This kind of loan is more like a nightmare for your home rather than an improvement. You will get an offer from a contractor to refurbish and model your home for a very reasonable cost. This contractor say that he could finish all the work via a lender that he knows.
As soon as work starts, you are asked to sign a number of papers. In most cases, the papers are blank. They could also be requested to be signed in an instant. Thus, you do not get to read the terms and conditions that you just signed. Only later will you realize that it’s a home equity loan contract that you signed.
Generally, the contractor may not finish working on your house; since he has no interest anymore, especially now that he has your money.
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not bad
jon
5 Dec 09 at 2:47 am