9 Home Equity Scams to Avoid

“Your home could be foreclosed on, but we can help!” If you’ve heard this line, you might have encountered a home equity scam. These schemes come in many forms—from predatory loans to fake foreclosure rescues. 

But once you know what to look for, home equity scams are easier to avoid. Keep reading to find out how to spot common scams, recognize red flags, and find trustworthy lenders. That way, you can use your home equity safely and confidently.

9 home equity scams to watch for

Home equity is a valuable asset you build up over time, but it can also make you a target for scammers. Here are nine home equity scams to be aware of:

1. Equity stripping or asset-based lending scams

What it is

This practice targets homeowners with substantial equity but perhaps lower income or credit scores. Lenders offer loans based solely on your home’s value—not your ability to repay. 

How to spot it

These can be signs of a scam:

• The lender doesn’t ask about your income or debts
• The loan amount seems unusually high
• The lender cares more about how much your home is worth rather than your financial situation

Protect yourself

Make sure you can afford the monthly payments for your home equity loan, regardless of your home’s value. If the payments seem unsustainable, walk away. You risk losing your home if you can’t repay.

2. Loan flipping

What it is

Loan flipping happens when scammers convince you to refinance multiple times, often within a short period. Each time, they charge high fees and possibly increase your interest rate. This repeated refinancing generates fees for the lender but erodes your equity. 

Red flags

Here are signs you might be dealing with a scammer:

• You receive frequent solicitations to refinance, sometimes just months apart
• The lender promises you lower payments with each refinance without explaining the long-term cost
• You face prepayment penalties that make it expensive to refinance elsewhere

Protect yourself

Avoid refinancing more than once every few years unless there’s a large rate drop. Always calculate the total cost of refinancing, including fees, to weigh whether it’s worth it. 

3. Signing over the deed or foreclosure rescue scams

What it is

This happens when a scammer offers to “help” avoid foreclosure if you sign over your property deed. They may promise to let you stay in the home as a renter and buy it back later, but often, this is just a ploy to take your home.

Warning signs

Be cautious if the person you’re talking to does any of the following:

• They pressure you to act quickly because you have no other options
• They request you sign over your deed as part of the “rescue” plan
• They promise they’ll let you buy back your home later or rent it indefinitely
• You receive a complicated contract with terms you don’t understand

Protect yourself

Never sign over your deed without consulting a lawyer or HUD-approved housing counselor. Contact your lender to discuss options such as loan modification or forbearance if you’re facing foreclosure.

4. Home improvement scams

What it is

A contractor contacts you and offers to make home repairs and arrange financing. They may perform shoddy work or disappear after receiving payment, leaving you with a damaged home and a high-interest loan.

Warning signs

Signs you may be dealing with a scammer include:

• You receive unsolicited repair offers, oftentimes after a natural disaster
• You’re pressured to decide immediately because the offer is “time-sensitive”
• The contractor is reluctant to provide references, licenses, or proof of insurance
• They offer to arrange financing through their “preferred” lender

Protect yourself

Get multiple quotes, check references, and never sign blank documents. Also, be cautious of any contractor who shows up at your door or contacts you first. 

5. Balloon payment scams

What it is

Balloon payments are common with some home equity products, especially HELOCs. They involve low initial monthly payments, with a large lump sum due at the end. Balloon payments aren’t inherently a scam, but they can be risky if you don’t fully understand them or a lender uses them deceptively.

Look out for

The following might indicate a balloon payment scam:

• Unusually low monthly payments that seem too good to be true
• Terms such as “balloon payment” or “balloon mortgage” in the fine print
• Vague answers about the final payment amount
•  Short loan terms (e.g., five to seven years) for a home equity loan

Protect yourself

Make sure you understand the total cost of a home equity loan—not just monthly payments. Legitimate lenders with balloon payments will be upfront about when and how your payment is due. If the lender is unclear or seems to be hiding details, consider it a red flag.

6. Mortgage servicing abuses

What it is

This happens when a lender adds unauthorized charges or misapplied payments to your account. As a result, you may have an inflated loan balance, damaged credit, or even wrongful foreclosure.

Watch for

Beware of these red flags:

• You have unexplained fees or charges on your statement
• Your payments are applied late to your account despite making them on time
• Your lender refuses to provide you with an itemized loan history statement
• Your monthly payment suddenly increases with no explanation

Protect yourself

Review your mortgage statement carefully each month and question any unfamiliar charges. By law, you can request an itemized loan history statement once every six months. If you suspect abuse, file a complaint with the Consumer Financial Protection Bureau (CFPB).

7. Credit insurance packing

What it is 

“Packing” happens when a lender adds unnecessary insurance or other benefits to your loan that you didn’t agree to. The insurance is often overpriced and may duplicate coverage you already have.

Red flags

You could be dealing with a scammer if you notice the following:

• The lender adds insurance you didn’t ask for at the last minute
• They rush through explaining the insurance or avoid talking about it
• If you question it, they say changing it will delay your loan
• They claim the insurance is free or automatically included

Protect yourself

Review your documents carefully. If you see unexpected charges, ask for a clear explanation. If you feel pressured, consider seeking legal advice before signing. Remember, you have the right to refuse additional products.

8. Reverse mortgage scams

What it is

Not all reverse mortgages are scams. However, some scammers use complex terms to trick seniors into damaging reverse mortgage deals. These scams can result in seniors losing their homes or facing unexpected costs.

Be wary of

Keep an eye out for these warning signs: 

• Pressure to act quickly because the offer is “time-sensitive” 
• Promises of “free money” or no-risk reverse mortgages
• Suggestions to invest the money in specific products or schemes
• Offers to use a reverse mortgage to buy a home you don’t currently own

Protect yourself

Get independent advice from a HUD-approved housing counselor before signing a reverse mortgage agreement. 

9. Bait-and-switch tactics

What it is

A lender offers one set of loan terms but presents different (often worse) terms at closing. This tactic relies on you feeling pressured to close the deal despite the loan’s changes.

Look out for

These could all signal you’re dealing with a bait-and-switch scam:

• Last-minute changes to loan terms, interest rates, or fees
• Pressure to sign quickly at closing
• Refusal to let you review documents thoroughly
• Claims that the new terms are “standard” or “nothing to worry about”

Protect yourself

Don’t sign any forms if the terms have changed unexpectedly. If you need more time to review, take it—a legitimate lender will understand. Bring a trusted advisor or attorney to the closing for an extra set of eyes.

9 red flags of home equity scams

Many types of home equity scams exist, but most have the same red flags:

1. You’re pressured to act quickly or make an immediate decision. 
2. The lender promises you’ll be approved no matter what. 
3. You’re required to pay upfront fees before the lender provides any services.
4. You receive unsolicited offers from companies that approach you first, especially door-to-door.
5. You’re encouraged to lie on applications. 
6. Your loan has vague or confusing terms. 
7. The lender is reluctant to provide written information about your loan. 
8. You’re pressured to sign incomplete or partially blank forms.
9. The lender promises to “save” your home from foreclosure. 

Tip

⚠️ If you encounter any of these red flags, pause and get advice from a trusted financial advisor or HUD-approved housing counselor before moving ahead.

Our expert says: Ask your lender these questions

Erin Kinkade

CFP®

What are the interest rates and fees? What documents will I need? What is the repayment term? How much equity can I borrow against my home (this will depend on the lender’s LTV requirement)? Are there any prepayment penalties if I pay off the loan before the term ends? If so, what are they? How long will the application process take, and how long will it take for me to receive my loan? How do you handle a missed payment? (Is there a grace period? Will it be reported to the credit bureaus?)

5 tips to avoid home equity scams

Taking these steps can also help you avoid falling victim to home equity scams:

1. Do your research. Look up any home equity lenders you’re considering on the Better Business Bureau to verify they’re legitimate. Read customer reviews and complaints too.
2. Get multiple offers. Prequalify with at least three home equity lenders to see which offers the best loan for your financial situation.
3. Don’t rush. Take your time reading documents and making decisions about your home equity. Legitimate offers will still be available tomorrow.
4. Seek independent advice. Meet with a HUD-approved housing counselor, a trusted attorney, or a financial advisor to get help deciding whether a home equity loan is legitimate.
5. Trust your instincts. If something feels off, it probably is. Don’t be afraid to walk away from a loan offer that doesn’t feel right.

Expert review question

How can borrowers protect their home equity from fraudsters or scammers over time?

How to find reputable home equity companies

Falling for a home equity scam is a major concern for many Americans, so we’ve researched over 30 nationally recognized lenders to find which ones offer the best home equity loans and the best home equity lines of credit (HELOCs). 

We picked our top-rated companies using these steps: 

• We looked at 850 pieces of information from 34 lenders.
• We checked online tools, clear pricing, and interest rates.
• We made sure they offered flexible repayment options.
• We looked for unique benefits that help borrowers.

After vetting each company, we recommend these top-rated home equity providers:

FAQ 

What should I do if I encounter a home equity scam?

If you encounter a home equity scam, stop all communication with the scammer and avoid sharing any personal or financial details. Keep records of any suspicious interactions, including emails, messages, or phone calls. Report the scam to relevant authorities (see below), and consider contacting a lawyer or housing counselor for guidance.

How do I report home equity scams?

You can report home equity scams to several agencies, including the Federal Trade Commission (FTC), your state attorney general’s office, and the Consumer Financial Protection Bureau (CFPB). If you believe your financial or personal information has been compromised, contact your bank and monitor your credit report for any unusual activity.

How can I check the legitimacy of a home equity company?

To check the legitimacy of a home equity company, verify that it’s registered and licensed through your state’s real estate or financial regulatory agencies. Look up reviews on trusted websites, such as the Better Business Bureau (BBB), and search for complaints or legal actions taken against the company. Be wary of unsolicited offers and avoid companies that demand upfront fees or make guarantees that seem too good to be true.