Home Equity Line of Credits - Red Light Signals to Look Out For

If you are in need of additional funds and you are having difficulty finding a source of such funds without suffering through very high interest rates, then it may be time to tap into probably your single greatest asset, your house. Yes, home equity loan or line of credit may be the best option you have. Home equity line of credit also uses the equity in your home as collateral. However, instead of borrowing a lump sum, this type of loan allows you to open a line of credit, from which you can borrow different amounts at different times over a specified period as long as you don't exceed the set credit limit. Many lenders offering home equity loans also offer home equity line of credit as an alternative.

However, not all lenders offering home equity loans are trustworthy. Like in any other sector of the finance industry, there are predators lurking everywhere ready to pounce on unsuspecting borrowers. Dealing with such unscrupulous lenders is very risky. There are scammers out there who will cheat you out of your house. Thus, to protect yourself from such hazards, make sure that you are aware of the red light signals to look out for when dealing with home equity line of credits. These are the warning signs which can tell you if a particular lender is trustworthy and legitimate.

Look out for aggressive lenders who have a high pressure sales pitch. You will instantly notice overeager lenders in the way they advertise their loan or line of credit programs. Some may even offer you 'bargain loans'. Typically, scammers will incessantly call you on the phone or visit your home offering such bargain loans. Another indicator of a possibly anomalous lender is when you are being rushed to sign and close a deal immediately within the day. When you encounter any of this signs, it's best to take a step back and not allow yourself to fall into their trap. Keep yourself above their sales and marketing pitches and do not be bullied into something you will surely regret later.

If the lender is asking you to pay a fee to cover the first payment or any incidental expenses, you should immediately suspect the legitimacy of such a lender. Also beware of lenders who will offer you seemingly smaller monthly payments which lead to bigger balloon payments that you may have difficulty paying for and you end up defaulting and losing not only your hard-earned money but also your home.

Aside from these red light signals, you can also protect your financial well being and keep yourself from falling into scams by first exploring other options you can consider before deciding that getting a loan is indeed the best thing to do. Remember that if you fail to meet your obligations, the lender can easily foreclose and you could lose your property. If you need to consolidate debt or pay bills, there are creditors and budget counseling programs you can join to help you face your financial obligations. You can also get in touch with your social service agency or housing agencies if you need assistance.

If you do decide that getting a home equity line of credit is the best option, you should first do your homework before getting into anything. Do a lot of research and contact several home equity line of credit lenders. Do not trust lenders who approach you out of the blue offering tempting home equity line of credits. Ask your friends and relatives for their referrals. When you have all the information you need, you can compare loan plans easily and you can pick up the better deal from among them.

Before you sign the deal, take note of the following factors: interest rates and payment schedules, the terms of loan or line of credit, points and fees, penalties and credit insurance. Make sure that all these factors point towards your advantage. Also, before you sign, have an attorney review the home equity line of credit papers. Make sure that all the lender's promises and assurances are put into writing to avoid future problems. You should also be aware of your rights under the law so you will know what to do if anything goes awry. To be sure, you can always consult the Federal Reserve or the Federal Deposit Insurance Corporation. They will provide you with all the important information you need that can help you be aware of the red light signals in home equity line of credits.