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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 home.
-
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 penalties.
-
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.
- Charge fees for unnecessary or nonexistent products and services.
- 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 problems.
- "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.
Remember:
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.
Current as of October 11, 2005
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