Know Your Lender Before You Take That Loan

By Priya Jestin, Staff Writer

If you plan to take a loan against your home’s equity anytime in the near future, better beware of the many frauds and other problems that are associated with some lenders. If you have a bad credit, you are especially vulnerable. The Federal Trade Commission (FTC) has issued a warning to people urging them to be aware of such loan practices to avoid losing your home. 

I know it sounds scary and you begin to wonder if you could actually trust anybody. But there is no need for a panic attack. When you plan to borrow, try to keep a cool head and find out if the lender you approach is credible. Some lenders try to ‘steal’ your equity by asking you to pad your income in order to qualify for a loan.  Why do they do this? Because at some point of time, you will be unable to make your payments. The lender will then foreclose your home and take away your equity.

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.