Tapping the equity in your home for a loan can make sense, but be careful of the type of home equity loan you consider. There are a lot of shady schemes and dishonest people ready to lure people into putting one of their most precious assets at risk. To avoid some of these common schemes, experts suggest the following precautions:
- Never take out a home equity loan if you don’t earn enough to cover the monthly payments.
- Don’t sign any documents you haven’t read, papers with blank spaces that will be filled in later by the lender, or applications with inaccurate information about your finances.
- Reject a loan that includes useless but expensive add-ons and fees you didn’t agree to.
- Avoid doing business with unsolicited callers who offer to arrange a home equity loan for you.
- Never sign over the deed to your house to a lender or a lender’s agent, such as a contractor.
- Shop around among several legitimate lenders to get the best terms.
- If you sign a contract for a home equity loan and change your mind or realize you can’t afford it, know that if the home is your principal residence, federal law gives you three business days to get out of the loan if you ask to in writing.