Are you a home owner? If so, then you have a very large asset at your disposal. Equity is the money that you have put into your home, and as you make payments on your mortgage, your equity grows. Since houses tend to cost quite a bit more than other large purchases – cars, boats, etc. – your home is likely to be your single greatest asset.
Unfortunately, everyone gets into trouble sometimes. People lose jobs, experience tax increases, and face unforeseen expenses that can serve to terrify home owners. Since equity is a large asset, people are often tempted to borrow against it in order to get back on their feet. While taking out a second mortgage or borrowing against your equity might be your only possible solutions, there are lenders out there who will take advantage of your vulnerable position.
RIP-OFF: Fee Packing
Be careful not to be drawn into a loan because it has a low APR (annual percentage rate). Some lenders will offer a low APR, but will charge extra “fees” on the side to make up the difference. Often, they will not mention these fees until after the paperwork has been signed, or they will tack them on later by accusing you of late payments or other neglect. They might count on your not noticing the fees when they’ve just been added to your monthly bill, or they might even leave blank space on the paperwork and then fill in the fee details later, after you’ve already signed.
SOLUTION: Make sure to read everything you sign, and to obtain a copy of the paperwork before you leave a lender’s office. Don’t sign paperwork with excessive white space between paragraphs, and have an attorney look over information you don’t understand. Then, when the bills start coming, look over each invoice carefully. Look for even minute monetary additions that you weren’t expecting from the loan.
RIP-OFF: DEED SIGNING
Let’s say you’ve fallen behind on your housing payments, and that financial institution that issued your mortgage is threatening to foreclose on your home. Lenders will seize this opportunity. You get a call from a lender who says they can refinance your home – thus saving your house – but that you must sign your deed over to them in order to avoid foreclosure until the financing comes through. Desperate, many homeowners will fall for this scam. Later, they receive a phone call that the financing has not come through, and you no longer own your home – or the equity you’ve already put into it.
SOLUTION: Never sign your deed over to anyone, no matter how safe the situation appears. Unscrupulous lenders can seem like they’re only trying to help, but once they have the deed to your home, they can charge you rent or kick you out.
RIP-OFF: Forced Credit Insurance
This occurs more often than not, and usually to people who haven’t researched mortgage loans before meating with a lender. Credit insurance is rarely required for mortgages and mortgage loans, but lenders will tell you that it is so that you end up paying more. You might have a low APR and a monthly bill you can handle, but credit insurance will tack on a hefty sum of money. People who are afraid of losing the loan or of alienating the lender won’t ask questions when it comes to insurance, and will sign the paperwork anyway.
SOLUTION: Before you sign mortgage loan paperwork, look over the details carefully. If you find that credit insurance is already included in the contract, ask the lender if it is required. If he says that it is, tell him you want an oppportunity to have a lowyer look over the paperwork, just to make sure. Or, you can tell him that you’ll shop around for a lender who doesn’t require credit insurance. This will usually call their bluff.
RIP-OFF: Home Improvement Loan
This is becoming increasingly popular, and is something to watch out for. A contractor – perhaps a painter or a landscape architect – will show up at your door with information about redoing your kitchen or lawn. They’ll show you how amazing your home would look with these additions, and ask if you’d be interested. When you tell him that it would be too expensive, he’ll say that he’s got a friend who runs a loan company, and that he can get you a loan against your equity that would more than pay for the additions. You think that sounds great, so you sign paperwork (which he conveniently has with him). The contractor is paid a percentage of your loan as a commission, and after all is said and done, it’s doubtful you’ll get what you paid for.
SOLUTION: Never borrow against your equity for aesthetic improvements to your home. Instead, save up for additions and changes you want to make, and never take a contractor’s word that he can secure “too good to be true” financing.