Home Equity Loans Pros
and Cons - Warnings From The FTC and What to Look For When Shopping For
a Home Loan - Bad Credit Refinancing
Home Equity Loans
Prospective borrowers should be aware of scams and other problems
associated with some lenders, especially if the borrower has bad
credit. The Federal Trade Commission (FTC) urges you to be aware of
these loan practices to avoid losing your home.
Some lenders may actually want to “steal” your equity by asking you to
pad your income in order to qualify for a loan. When you are unable
make your payments the lender will foreclose your home and “strip” you
of your equity. There may be hidden costs associated with the
foreclosure or you may be forced to pay exorbitant prepayment
penalties. The FTC recommends all barrowers not pad their income and
read the fine print to avoid these penalties.
Some lenders may offer lower payments but then include a balloon payment
in the loan. This is more common with interest only loans. According
to the FTC, these loans are usually targeted at homeowners in
Loan flipping is another method used to scam prospective barrowers.
This entails a lender making an offer soon after you refinanced your
home. He may say you can take a bigger loan for a vacation or other
reason. If you accept the offer, he will refinance your original loan
and then will lend you the additional money. With each new loan the
lender or broker may collect new points or fees.
Never rush to sign papers. Some home improvement contractors work with
lenders and may approach homeowners with prospective improvements. When
the homeowner says he does not have the money, the contractor may offer
to set the owner up with a lender. Sometime after the contractor begins
work, the homeowner is asked to sign some papers quickly to complete the
transaction. These loan papers could even be blank. Later you find out
the interest rate, points and fees are outrageous. To make things
worse, after the loan agency pays the contractor he may skip finishing
the job to your satisfaction.
Lenders may also try to “pack” your loan with extra insurance. Here,
the lender gives you sets of papers to sign hoping you don’t notice one
of them includes a credit insurance policy. They may even tell you that
if you don’t want the credit insurance, the loan papers will have to be
rewritten, and may take several extra days.
Borrowers should also watch for mortgage servicing abuses. You may
discover that after you signed the loan agreement that the payments are
higher than expected. This may be because the payments include “escrow
for taxes and insurance even though you arranged to pay those items
yourself with the lender's okay.” The FTC says there may be other
charges including legal fees added to what you owe. These added fees
could add to your monthly payments and what you owe at the end of the
Here is another pitfall. Let’s say you are in foreclosure and another
lender offers to help. Before he can help you, he asks you to deed your
property to him, claiming that it's a temporary measure to prevent
foreclosure. Once the lender has the deed to your property he may treat
it like his own. He may barrow against your house for his benefit, not
yours, or even sell it to someone else. You may not even get any money
when the property is sold, plus he may want to charge you rent for
living there and start eviction proceedings.
By Dan Wilson
Keywords and misspelling: investmint investing intesters
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