Are you in need of cash?
Do you want to consolidate your debts?
Are you receiving home equity loan or refinancing offers that seem too good to be true?
Does your home need repairs that contractors tell you can be easily financed?
If you are a homeowner who needs money to pay bills or for home repairs, you may think a home equity loan is the answer. But not all loans and lenders are the same--you should shop around. The cost of doing business with high-cost lenders can be excessive and, sometimes, downright abusive. For example, certain lenders--often called "predatory lenders"--target homeowners who have low incomes or credit problems or who are elderly by deceiving them about loan terms or giving them loans they cannot afford to repay.
Borrowing from an unscrupulous lender, especially one who offers you a high-cost loan using your home as security, is risky business. You could lose your home and your money. Before you sign on the line,
If you’re having money problems, consider these options before you put your home on the loan line.
If you decide a loan is right for you, talk with several lenders, including at least one bank, savings and loan, or credit union in your community. Their loans may cost less than loans from finance companies. And don’t assume that if you’re on a fixed income or have credit problems, you won’t qualify for a loan from a bank, savings and loan, or credit union--they may have the loan you want!
Contact several lenders--and be very careful about dealing with a lender who just appears at your door, calls you, or sends you mail. Ask friends and family for recommendations of lenders. Talk with banks, savings and loans, credit unions, and other lenders. If you choose to use a mortgage broker, remember they arrange loans but most do not lend directly. Compare their offers with those of other direct lenders.
Be wary of home repair contractors that offer to arrange financing. You should still talk with other lenders to make sure you get the best deal. You may want to have the loan proceeds sent directly to you, not the contractor.
Comparison shop. Comparing loan plans can help you get a better deal. Whether you begin your shopping by reading ads in your local newspapers, searching on the Internet, or looking in the phone book, ask lenders to explain the best loan plans they have for you. Beware of loan terms and conditions that may mean higher costs for you. Get answers to these questions and use the worksheet to compare loan plans:
Interest Rate and Payments
Term of Loan
Points and Fees
After you have answers to these questions, start negotiating with more than one lender. Don’t be afraid to make lenders and brokers compete for your business by letting them know you are shopping for the best deal. Ask each lender to lower the points, fees, or interest rate. And ask each to meet--or beat--the terms of the other lenders.
Once You’ve Selected a Lender, Get the Following
Don’t Sign on the Dotted Line if the Lender …
You Have 3 Business Days to Cancel the Loan
If you're using your home as security for a home equity loan (or for a second mortgage loan or a line of credit), federal law gives you 3 business days after signing the loan papers to cancel the deal--for any reason--without penalty. You must cancel in writing. The lender must return any money you have paid to date.
Do You Think You've Made a Mistake?
Has the 3-day period during which you may cancel passed and you're worried that you've gotten in over your head? Do you think your loan fees were too high? Do you believe you were steered into monthly payments you can't afford? Has your lender repeatedly pressured you to refinance? Is your loan covered by insurance you don't need or want?
If you think you've been taken advantage of, state and federal laws may protect you. Also, the following organizations may be able to help:
You can learn more about credit and home equity loans by visiting the federal government’s web site for consumers, www.consumer.gov (see the Home and Community section). If you don’t have access to the Internet, ask a friend or relative to get the information for you. Or visit your local library or senior center, which may offer you free access to the Internet on their computers.
For More Information
State Banks that Are Members of the Federal Reserve System
Division of Consumer
and Community Affairs
Federally Insured State Non-Member Banks and Savings Banks
National Banks and National Bank-Owned Mortgage Companies
Office of the Comptroller
of the Currency
Federally Insured Savings and Loan Institutions and Federally Chartered Savings Banks
Office of Thrift
Federal Credit Unions
Mortgage Companies and Other Lenders
Federal Trade Commission
Other Information Sources
Department of Housing
and Urban Development
Office of Federal
Housing Enterprise Oversight (OFHEO)
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fillable area on the back panel for you to provide your own contact information.
Worksheet for printing (58 KB PDF)
This information was prepared by the following federal agencies: Department of Housing and Urban Development, Department of Justice, Federal Deposit Insurance Corporation, Federal Housing Finance Board, Federal Reserve Board, Federal Trade Commission, National Credit Union Administration, Office of Federal Housing Enterprise Oversight, Office of the Comptroller of the Currency, Office of Thrift Supervision.
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