HELOCs and Home Improvements

Spring is an ideal time to start on home improvement projects, as the weather is warming up and a new wave of inspiration has arrived. Before you begin, you should decide if you will finance the project through savings or if you intend to borrow money. You should also determine if you will need to hire a contractor. We have included articles from the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and Building Advisor to explain HELOCs, hiring a contractor, and mortgage relief scams.

HELOC stands for home equity line of credit. The CFPB explains that this allows you to borrow against your home equity during a period of time – say, ten years, which is known as a draw period. You can continue borrowing during this period as you repay the principal. Once this period ends, you will enter the repayment period, in which you can no longer borrow and must pay off the remaining principal and interest. 

Hiring a contractor is often one of the next steps after securing a HELOC. The FTC identifies the four common types of contractors as general contractors, specialty contractors, architects, and designers. This can be an expensive commitment, so it is best to review online ratings on trusted sites and to consult with friends, family, neighbors, and coworkers before you settle on a contractor. It is also important to receive estimates and to ask important questions related to permits, insurance, and subcontractors before agreeing to a contract. Once you have hired a contractor and the work has begun, you should keep records on important information, such as a copy of the contract, change orders, all correspondence, and all payments, as you will need receipts for tax purposes.

If you choose to go with a contractor that can both design and build, it is important to make sure you are on the same page in terms of your complete vision of the project. Not only should you ask them all the questions you would typically ask a contractor, but you should also ask about anything you would address with an architect or designer. When looking for a design-build contractor, Building Advisor recommends choosing one with tastes compatible to your own. This can be done by looking at their portfolio and visiting some of their projects.

As you shop around for a HELOC, it is important that you are aware of mortgage relief scams. Thankfully, safeguards have been put in place to help protect consumers, but you should still know the types of actions taken by predatory companies. The FTC highlights common scams and the protection offered by The Mortgage Assistance Relief Services (MARS) Rule, also known as Regulation O. This rule offers protection by making it illegal for companies to collect fees until a homeowner receives and accepts an offer of relief. A few of the biggest mortgage relief warning signs include: when a business tells you not to contact your lender, lawyer, or housing counselor; asks you to transfer your property deed or title; or requests that you make your mortgage payments directly to them rather than your lender.

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