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While most home equity loan lenders are reputable institutions operating within the law, you do need to protect yourself from the abusive lending practices of some unscrupulous lenders. Homeowners - particularly elderly, minority and those with low incomes or poor credit - should be careful when borrowing money based on their home equity. This is because exploitative lenders especially target these borrowers.
The dishonest lender has a variety of tricks and practices. Avoid any lender that:
- tells you, or requires you, to falsify information on the loan application. For example, the lender tells you to say that your loan is primarily for business purposes when it's not.
- pressures you into applying for a loan or applying for more money than you need.
- pressures you into accepting monthly payments you can't make.
- fails to provide required loan disclosures or tells you not to read them.
- misrepresents the kind of credit you're getting. For example, calling a one-time loan a line of credit.
- promises one set of terms when you apply, and gives you another set of terms to sign - with no legitimate explanation for the change.
- tells you to sign blank forms - the lender says they'll fill them in later.
- says you can't have copies of documents that you've signed.
You should not be charged an excessively high interest rate or fees. Generally, your closing costs should be 5% of your loan amount or less and your interest rate should be less than 4% to 6% above the prime rate. If you think you are being overcharged, you must comparison shop with more than one lender to make sure that you are not the victim of an unscrupulous lender.
Here are some things you should never do. Never accept lender recommendations from home improvement contractors. Never let your lender directly pay a home improvement contractor. Find your lender by actively searching for them and never let your lender find you as in the case of a door-to-door salesman. Never deed your property to anyone without first consulting an attorney. Never allow the lender or anyone else to pressure you in any part of the home equity loan process. Always read the entire loan document and never sign documents with any blank spaces.
If you have been the victim of a lender, you can file a complaint.
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