One of the most common reasons to get a home equity loan is to make improvements or upgrades to the home itself. With some changes, the property's value goes up almost as much as what it cost to make those changes. This, plus the fact that the interest on a home equity loan is tax-deductible, makes it a good idea to use home equity to make improvements.
Some contractors, however, see this idea as a great way to make a lot of money at the expense of the homeowner. A classic scam that has to do with home remodelling is still very popular. When people want to make changes to their homes, they usually look for a contractor and a lender to help them pay for the work. In this financial scam, the contractors try to get customers by telling them they can finance the project themselves at good rates. Most of the time, the people who get ripped off believe the contractor when he says he can do everything. Once the customer agrees to the deal, a number of bad things often happen:
Expensive loan: The contractor does provide the money, but it turns out that the loan terms are not good. This could mean sky-high interest rates, a lot of fees, and a long time to pay back the loan.
Work that isn't done well: After getting the bad financing described above, the contractor hires a subcontractor to do the work. Most of the time, this leads to bad work or no work at all. And the contractor seems to disappear all too often.
The worst thing that could happen is that the loan turns out not to be a loan at all. The owner signs the "loan papers," only to find out that they have actually given the property to the contractor.
People who do these kinds of crimes often do so by taking advantage of minorities and working in areas where people are less educated or less likely to understand the terms of the documents. Most of the time, the victims are too embarrassed to call the police, so the criminals usually get away.
If you want to make changes to your home, you should look for a qualified contractor yourself instead of taking someone's offer when they knock on your door. In addition, the homeowner should seek references in order to verify that the contractor delivers as promised. When the alternative is losing your home, a little bit of care can go a long way.
