New York Post
January 12, 2003

Q&A: How to prevent home-equity-loan rip offs

Q -- I need to borrow some money for immediate business needs. I'm considering borrowing against my home's equity. What are the pitfalls I should be aware of? How can I avoid them?
Joel S., via email

A -- First, you need to find the right lender. If you cannot get a referral from somebody you trust, then ads in respectable media may be the best place to look, according to Michael Moskowitz, CPA, president, Equity Now, a direct mortgage lender. "But beware of ads that mislead about rates and credit eligibility," he cautioned.

"If your credit isn't good and someone is promising you an unbelievably low rate, then chances are a bait and switch is taking place. You are either going to have to pay high points or a higher interest rate at closing. Remember nothing is for free and if an offer is too good to be true, it's probably not true."

People with less than perfect credit should turn to a lender that specializes in their needs. Even after you've selected a lender, the need for care and scrutiny is far from over. Throughout the process make sure your lender is giving you the information you need.

Know what you're paying for, said Moskowitz. Ask for the closing costs in advance in writing.

If you use a broker to find your lender, you need to know that the size of the broker's fee will affect your payment for the next 15 to 30 years. Insist on getting on letterhead, in advance, the fee as a percentage of the loan amount, including any money paid by the lender to the broker. That way, you know whom to hold responsible and can do so.

Know how long each step of the process will take and get it in writing. Some lenders approve loans in-house and are able to make fast decisions. But other lenders must send the loan applications to a third party, a process that can take weeks before you get an answer.