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Module 5
Life as a Homeowner
Benefits of Home Ownership
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Beware of Scams

You May Be a TargetAs a homeowner, you unfortunately may be the target of various scams designed to take advantage of you and the equity you have built. Homeowners, especially those who have a good deal of equity in their homes, frequently receive offers for loans for debt consolidation or other credit needs. These home equity loan offers can be made door-to-door, by telephone or by mail. While many of the companies offering these types of loans are reputable, others may not have your best interests in mind.

Home Equity Loans to Avoid
  • Loans that strip the equity out of your home: Equity stripping occurs when you have equity in your home and you get a loan that was approved based on the equity in your home, rather than on your ability to afford or repay the loan. Many homeowners are tempted by “easy money” but are unable to repay the loan and may eventually end up losing their home to foreclosure. Always be sure you can afford to repay the loan.

  • Loans that are refinanced multiple times: Many homeowners see cash-out refinancing as an opportunity to use their equity to get extra money to repay debts or for other uses. In some cases, refinancing can be a good move for you. But when you refinance your loan multiple times, you pay additional points and fees that are rolled into the balance of your loan during each refinance, which increases your debt and decreases your equity. Consider refinancing carefully.

  • Loans that include “benefits” packed into the loan: Some loans are packed with costly single premium credit life insurance, credit disability insurance or other “benefits” that you may not want or need and which are not disclosed by the lender. Read the fine print of your loan application to be sure you are not agreeing to purchase products or “benefits” that you don’t want.

  • Bait and switch loans: Some offers promote one set of loan terms when you initially inquire and/or apply, but after you proceed through the detailed loan process and are ready to close the loan and sign final loan documents, the terms are switched, usually involving higher interest rates and higher loan fees. Never feel pressured to agree to different terms. Instead, find a trustworthy lender.

Never Hire Someone on the SpotAlso, be on the lookout for unscrupulous home repair offers and offers by contractors to finance home repairs. Never hire someone on the spot — even if the person seems reliable. Refer to Maintaining Your Home for tips on how to choose a reputable contractor.

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