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Protect Yourself from Predatory Lenders
Buying or refinancing your home may be one of the most important and
complex financial decisions you'll ever make. Many lenders, appraisers,
and real estate professionals stand ready to help you get a nice home
and a great loan. However, you need to understand the home buying process
to be a smart consumer. Every year, misinformed homebuyers, often first-time
purchasers or seniors, become victims of predatory lending or loan fraud.
Don't let this happen to you!
11 Tips On Being A Smart Consumer
- Before you buy a home, attend a homeownership education course offered
by the U.S. Department of Housing and Urban Development (HUD)-approved,
non-profit counseling agencies.
- Interview several real estate professionals (agents), and ask for
and check references before you select one to help you buy or sell a
- Get information about the prices of other homes in the neighborhood.
Don't be fooled into paying too much.
- Hire a properly qualified and licensed home inspector to carefully
inspect the property before you are obligated to buy. Determine whether
you or the seller is going to be responsible for paying for the repairs.
If you have to pay for the repairs, determine whether or not you can
afford to make them.
- Shop for a lender and compare costs. Be suspicious if anyone tries
to steer you to just one lender.
- Do NOT let anyone persuade you to make a false statement on your loan
application, such as overstating your income, the source of your downpayment,
failing to disclose the nature and amount of your debts, or even how
long you have been employed. When you apply for a mortgage loan, every
piece of information that you submit must be accurate and complete.
Lying on a mortgage application is fraud and may result in criminal
- Do NOT let anyone convince you to borrow more money than you know
you can afford to repay. If you get behind on your payments, you risk
losing your house and all of the money you put into your property.
- Never sign a blank document or a document containing blanks. If information
is inserted by someone else after you have signed, you may still be
bound to the terms of the contract. Insert "N/A" (i.e., not
applicable) or cross through any blanks.
- Read everything carefully and ask questions. Do not sign anything
that you don't understand. Before signing, have your contract and loan
agreement reviewed by an attorney skilled in real estate law, consult
with a trusted real estate professional or ask for help from a housing
counselor with a HUD-approved agency. If you cannot afford an attorney,
take your documents to the HUD-approved housing counseling agency near
you to find out if they will review the documents or can refer you to
an attorney who will help you for free or at low cost.
- Be suspicious when the cost of a home improvement goes up if you don't
accept the contractor's financing.
- Be honest about your intention to occupy the house. Stating that you
plan to live there when, in fact, you are not (because you intend to
rent the house to someone else or fix it up and resell it) violates
federal law and is a crime.
What is Predatory Lending?
In communities across America, people are losing their homes and their
investments because of predatory lenders, appraisers, mortgage brokers
and home improvement contractors who:
- Sell properties for much more than they are worth using false appraisals.
- Encourage borrowers to lie about their income, expenses, or cash available
for downpayments in order to get a loan.
- Knowingly lend more money than a borrower can afford to repay.
- Charge high interest rates to borrowers based on their race or national
origin and not on their credit history.
- Pressure borrowers to accept higher-risk loans such as balloon loans,
interest only payments, and steep pre-payment penalties
- Target vulnerable borrowers to cash-out refinances offers when they
know borrowers are in need of cash due to medical, unemployment or debt
- "Strip" homeowners' equity from their homes by convincing
them to refinance again and again when there is no benefit to the borrower.
- Use high pressure sales tactics to sell home improvements and then
finance them at high interest rates.
What Tactics Do Predators Use?
- A lender or investor tells you that they are your only chance of getting
a loan or owning a home. You should be able to take your time to shop
around and compare prices and houses.
- The house you are buying costs a lot more than other homes in the
neighborhood, but isn't any bigger or better.
- You are asked to sign a sales contract or loan documents that are
blank or that contain information which is not true.
- You are told that the Federal Housing Administration insurance protects
you against property defects or loan fraud it does not.
- The cost or loan terms at closing are not what you agreed to.
- You are told that refinancing can solve your credit or money problems.
- You are told that you can only get a good deal on a home improvement
if you finance it with a particular lender.
If a deal to buy, repair or refinance a house sounds too
good to be true, it usually is!
Housing counselors working at HUD-approved agencies can help you be a
smart consumer. To find a counselor near you, call (800) 569-4287 or go
to HUD's housing counselors list online.
Information from U.S. General Services Administration.
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