Avoid Home Equity Loan Scams

I’d recently written about home equity loan scams and how you should be careful to avoid unscrupulous lenders. I thought I should elaborate on the subject, so here I am again with some more information on these scams. One of the most common scams employed by scamsters involves stripping homeowners of their home’s equity. Equity stripping, as it is called, occurs when a homeowner is approved for a loan s/he cannot afford to pay. An honest lender will approve a homeowner only for an affordable amount of money irrespective of the equity your home has gained. This is done to help you avoid possible foreclosure. However, there are other lenders whose aim is to get you to foreclose, so they approve you for a high home equity loan. This decision is not based on your ability to afford or repay the loan. Obviously, when you know that you can get more money against your home, it’s natural to be tempted. However, what you may not realize is that it is easy to obtain the loan but next to impossible to maintain the high payments.

The simplest way to avoid equity stripping is by getting quotes from multiple lenders and going in for the most competitive offer. And, my biggest piece of advice… don’t let greed cloud your senses. If the home equity lender approves you for a ridiculously high amount based on your home's equity, be extremely cautious – rather, it’s best to not deal with such a lender.

Another common practice that unscrupulous lenders employ is to switch the terms of the agreement once they know the homeowner will take the loan. Here the mortgage lender will offer you one set of loan terms and they will be good enough for you to accept. However, at the loan closing, they will switch the terms and because they do this at the last minute, many homeowners feel pressured to comply with the new terms. This may include a higher interest rate and higher loan fees. The simplest thing you can do in such a situation is walk away from the deal.