Your home is probably your most valuable possession. But, if you agree to a loan that's based on the equity you in your home, you may be putting your most important asset at risk.
Watch out for abusive lending practices like these that could cause you to lose your home:
Asset-Based Lending: The lender makes a loan based upon the equity in your home, without considering whether or not you can make the payments. If you can’t keep up with the payments, the lender will foreclose - taking your home and the equity you spent years building.
Loan Flipping: A lender keeps encouraging you to refinance your original loan with a new long-term, higher cost loan. Each time the lender “flips” the existing loan, you must pay new points and fees, which are added to the loan balance. These added costs will eat up the hard-earned equity that you have earned.
Packing: You receive a loan that contains charges for products or services you didn’t ask for and don’t need. “Packing” used to involve the inclusion of long-term credit insurance on home loans. North Carolina law now prohibits lenders from financing credit insurance on home loans.
Hidden Balloon Payments: A lender may offer to refinance your mortgage and lower your monthly payments. Look at the loan terms carefully. The payments may be low because you’ll owe a huge lump sum called a balloon payment at the end of the loan term. If you can't make the balloon payment, you could lose your home.
The Home Improvement Loan: A contractor offers to perform work on your home and tells you he can even arrange financing. You agree to the project and sign some papers, only to realize later that you’ve agreed to a home equity loan with high interest rates, points and fees. Make sure you understand who is making the loan and that you have recourse against the contractor if he never finishes work on your home or does a poor job.
Mortgage Servicing Abuses: After you get a mortgage, your loan and loan payments may be handled by your lender or by a third party known as a servicer. Make sure that your lender or servicer does not add charges that you don't understand – such as legal fees, inaccurate late fees, and extra insurance – to your loan. You are entitled to a written explanation if any additional fees are added to your account. By law, you can also request an itemized loan history statement from your servicer without charge once in every six month period.
Signing Over Your Deed: If your lender has threatened to foreclose, a foreclosure “rescue” outfit may promise to help catch up your payments to avoid foreclosure. The rescue outfit will promise to let you stay in your home while asking you to deed your property over. Once you sign the deed, you have lost control over your house and you can be evicted. A rescue scammer can also borrow money on any equity you had in the house.
How to Protect Yourself
To protect yourself from losing your home to inappropriate lending practices, follow these tips:
- Agree to a home equity loan if you don’t make enough money to make the monthly payments, including future payments after the rate resets on an adjustable loan .
- Sign any document you don’t understand or that that has blank spaces to be filled in after you sign.
- Let anyone pressure you into signing any document.
- Agree to a loan that includes prepaid credit insurance or extra products you don't want.
- Let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the cost of the loan is really worth it.
- Keep careful records of what you've paid, including billing statements and canceled checks. Dispute any charge you think is inaccurate. Ask for a copy of your loan history statement if you have any concerns about charges or the posting of your payments.
- Check contractors' references and get estimates when it is time to have work done on your home.
- If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable family member, a non-profit housing counselor or an attorney.
- Consider all the costs of financing before you agree to a loan.
- Remember that if you are refinancing your home loan or financing a home improvement, you have a legal right to cancel the transaction within three business days without any cost to you.
If you have a complaint about a home equity scam, contact us
toll free within North Carolina at 1-877-5-NO-SCAM.