As with almost any type of financial transaction, there are some scams involving home loans which people should be careful to avoid. Here are details on a couple of common home loan scams and some tips on how you can successfully avoid them.

HOME IMPROVEMENT: One common home loan scam involves both a contractor and a lender. According to the Federal Trade Commission website, such scams usually begin with a contractor contacting the homeowner and offering to make improvements to the home. If the homeowner doesn’t have enough money to pay for the improvements, the contractor will offer to obtain a loan to pay for it. After the contractor starts working, the homeowner will be requested to sign papers which are blank, or be pressured to sign papers without reading them. With these scams, the loan (which is entered into by signing these papers) is actually a home equity loan, usually with unfavorable terms. The FTC also indicates that, in some cases, the contractor’s work will be of poor quality or left incomplete. To avoid this, it recommends not signing any papers under pressure or which are blank, not accepting a loan through a contractor without comparison shopping for them first, and obtaining a detailed contract describing the work a contractor is to complete.

FORECLOSURE PREVENTION: Another common type of scams claim to help people who are facing foreclosure on their homes. According to the U.S. Department of Justice website, scams of this type might offer to refinance the loan or otherwise provide a solution, then request that mortgage payments be made to them (instead of the lender), and may require the home’s deed to be signed over. The scam businesses keep all the money paid to them, and file for bankruptcy under the homeowner’s name. Overall, such scams harm the homeowner’s credit, cause them to lose money, and will only delay foreclosure upon the home. To avoid them, the DOJ recommends being careful if a business or person refers to themself as a “foreclosure service” or “mortgage consultant”, requires that a fee be paid before any services are provided, promotes their service to those with homes listed to be foreclosed upon, requires the deed to be transferred, or requests that loan payments be made directly to them.

Basically, to avoid home loan scams, home owners should always read and understand contracts or agreements before signing them, avoid allowing themselves to be pressured, and become informed about a particular type of loan transaction before taking part in it.