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Most home improvement loans are secured by a mortgage on your home. It's better not to finance expensive credit insurance or to consolidate other debts into this loan. Your home will be at risk for every extra dollar you borrow. If you don't make your payments, you could lose your home.
Plan ahead.Know what you want or need to have done before contacting a contractor.
Ask family and friends for recommendations.
Get at least three written estimates from contractors who have come to your home to evaluate what needs to be done. Be sure the estimates are based on the same work so that you can make meaningful comparisons.
Contact your local or state consumer agency and Better Business Bureau for information on contractors' licensing or registration requirements and complaint records.Some states require licensees to pass tests for competency and scrutinize licensees for financial solvency. Some states also have a fund to cover some financial losses that result from problems with licensed contractors.
Get references and talk to people for whom the contractor has done similar work.
Get the names of suppliers and ask if the contractor makes timely payments.
Contact your local building inspection department to check for permit and inspection requirements.Be wary if the contractor asks you to get the permit. It could mean the firm is not licensed.
Be sure your contractor has the required personal liability, property damage and worker's compensation insurance for his/her workers and subcontractors. Check with your insurance company to find out if you are covered for any injury or damage that might occur.
Insist on a complete written contract.Know exactly what work will be done, the quality of materials that will be used, warranties, timetables, the names of any subcontractors, the total price of the job and the schedule of payments.
You have cancellation rights (usually three business days) in home improvement contracts.Cancellation rights entitle you to get out of the contract without penalty, although you may be liable for any benefit received. You may be covered under both state and federal law.
Understand your payment options.Compare the cost of getting your own loan vs. contractor financing.
Try to limit your down payment.Find out if your state laws specify that only a certain percentage of the total cost may be made as a down payment.
Don't make final payment or sign an affidavit of final release until you are satisfied with the work and know that subcontractors and suppliers have been paid.State lien laws may allow unpaid subcontractors and/or unpaid suppliers to attach your home.
Check to see if state or local laws limit the amount by which the final bill can exceed the estimate,unless you have approved the increase.
Pay by credit card when you can.Under federal and state law, in most cases, you have the right to assert any claims or defenses you have against the seller of the goods or services against the credit card company. This generally means that if the goods or services are defective, you can refuse to pay the credit card company until the problem is corrected.
Be especially cautious if the contractor:
-comes door-to-door or seeks you out;
-just happens to have material left over from a recent job;
-tells you your job will be a "demonstration;"
-offers you discounts for finding him/her other customers;
-quotes a price that's out of line with other estimates;
-pressures you for an immediate decision;
-offers exceptionally long guarantees;
-can only be reached by leaving messages with an answering service;
Home
Home Financing
When shopping for a mortgage to buy a house, educate yourself.
Read the real estate section of your local newspaper to find out the current interest rates.
Check the rates for 30-year mortgages, 15-year mortgages and adjustable rate mortgages. Ask the lending institution to explain the differences.
Know your lending institution.
Request information from the Federal Trade Commission, the Federal Reserve Board, and the Department of Housing and Urban Development.
Visit the numerous web sites providing home buying information. Good gateway to these web sites www.consumerworld.org. Click on housing and/or money.
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Home Equity Lending
Your first decision is whether you need a revolving line of credit or a one-time, closed end loan.A revolving line of credit enables the homeowner to choose when and how to borrow against the equity in the home. In a closed end loan, the homeowner receives a lump sum for a particular purpose, such as remodeling or tuition.
Although a home equity loan might allow you to take tax deductions you could not take with other types of loans, your home will be at risk if you cannot make the monthly payments.
When comparing home equity loan offers, ask:
-What is the minimum monthly payment?
-Is there a maximum?
-What is the annual percentage rate?
-If the interest rate is adjustable, how much can it increase at one time?
-Is there a maximum rate?
Ask aboutannual fees or transaction fees.
-How large a credit line is available for a revolving line of credit?
-How long is the term of the closed end loan?
-What are the initiation fees for a closed end loan?
Home Equity Fraud
Some companies offering home equity loans are only interested in how much money they can make. To avoid becoming a victim of home equity fraud:
Apply for a home equity loan through a bank first.Bank loans are likely to cost less than loans offered by finance companies.
Be especially careful if responding to home solicitations.Many home salespeople are very skilled at persuading you to buy things you don't need or want.
Read everything before you sign it.
Keep a copy of everything you sign.
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Reverse Mortgages
If you own your home, a reverse mortgage loan will pay you in monthly advances or through a line of credit. Reverse mortgages convert home equity into cash with no repayment required for as long as borrowers live in their homes. Because you're drawing on the value of your home, there will be less equity for you and your heirs in the future.
Because of the complex nature of reverse mortgages, you may wish to seek the advice of an attorney, financial advisor or accountant before taking out this type of loan.
Interest rates on this type of loan may be higher and are charged on a compound basis. Application fees, points and closing costs also may be higher than other types of loans. Interest rates are not deductible on your income taxes until you repay the loan in full. There can be dramatic differences between reverse mortgages, so shop around.
For more information about home equity lending, fraud or reverse mortgages contact your state consumer protection office, the HUD Housing Counseling Clearinghouse at 1-888-466-3487, the FTC, or the National Consumer Law Center. |
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