By getting a home equity loan, you can pay off your credit cards, pay for home improvements, etc. In fact, one of the perks of being a homeowner is that you can use the equity in your home to pay for big expenses. Home equity loans and lines of credit are offered by a lot of lenders at great rates. But homeowners should watch out for scams involving home equity loans that could cause them to lose their home.
Learn the basics of home equity
A home equity loan is like a personal loan that is backed up by the value of your home. The amount you can get will be different. Most of the time, you can get a loan up to the amount of equity in your home. But most lenders will look at your credit score and income to make sure you qualify for the amount you want.
Home equity loans are good because the money can be used for a lot of different things. If you want to pay off your credit card balances, you can do this with a home equity loan. Still, be careful if you want to get one of these loans. Your home is used as collateral, so if you don't keep up with payments, your home will be taken away. Some lenders bet that you won't be able to pay back a home equity loan.
Common cons with home equity loans
Lenders steal your equity in a number of different ways. First of all, there are lenders who trick homeowners into borrowing more money than they can pay back.
A lender may also tell a homeowner to lie about their income so that they can get a bigger loan. Instead of thinking about what's best for you, these lenders set their clients up to fail. So, when you can't make the payments anymore, the lender takes the house back.
Read the loan agreement carefully before applying for a home equity loan. If you can, have an attorney look over the contract. Some home equity loans have a large payment called a "balloon payment" that is due at the end of the loan term. This amount is too much for the average homeowner to pay. Even if you make your payments on time, the home equity lender could take your home if you can't make the last payment.
