Protect Yourself: Home Equity Do's and Don'ts

If you are taking out a home equity loan, you should be aware of your rights as a borrower and make sure you avoid being a target of fraud or other improprieties. The main federal law governing lending practices is the Fair Housing Act, which prohibits discrimination and requires a certain level of transparency with borrowers. See Fair Housing and Lending and Mortgage Discrimination for more details.

There are a number of steps you can take to protect yourself against losing your home to inappropriate lending practices. The following lists outline what you should and shouldn't do when seeking a home mortgage. 

Don't:

• Agree to a home equity loan if you don't have enough income to make the monthly payments.
• Sign any document you haven't read or any document that has blank spaces to be filled in after you sign.
• Let anyone pressure you into signing any document.
• Agree to a loan that includes credit insurance or extra products you don't want.
• Let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the cost you will pay for the loan is really worth it.
• Deed your property to anyone. First consult an attorney, a knowledgeable family member, or someone else you trust.

Do:

• Ask specifically if credit insurance is required as a condition of the loan. If it isn't, and a charge is included in your loan and you don't want the insurance, ask that the charge be removed from the loan documents. If you want the added security of credit insurance, shop around for the best rates.
• Keep careful records of what you've paid, including billing statements and canceled checks. Challenge any charge you think is inaccurate.
• Check contractors' references when it is time to have work done in your home. Get more than one estimate.
• Read all items carefully. If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable family member or an attorney. Consider all the costs of financing before you agree to a loan.