Avoid Mortgage Scams

Any time you take out a loan or make a large investment, it’s vital that you choose legitimate people and companies to work with; otherwise, you may end up with a whole lot of nothing for the substantial financial investment you made.

These days, scams are changing rapidly and getting more creative. It’s important to stay on top of currently popular scams in any industry; the mortgage industry is no different. In fact, being in the know about current scams being run in the mortgage industry can be more important than other industries because you are dealing with a large loan amount.

In this article, we’ll take a look at how to avoid mortgage scams that are currently being run in an effort to protect you and your investment.

Purchasing Points

When you finance your home with a mortgage, you’ll be given the option to purchase points in order to lower the mortgage rate with which your loan is being given. When a lender doesn’t give you the option to take steps to lower your interest rate, like purchasing points, buyer beware.

Ability to Repay

One of the largest items factored into your approval for a mortgage and how much mortgage you are approved for is your ability to repay. There are a lot of things factored into this decision, such as your income, debts, and assets; the process can be lengthy and frustrating, but necessary to make sure you and the lender don’t get into a situation in which the loan can’t be repaid. Keeping this in mind, if you are dealing with a lender who is showing little to no interest in your ability to repay, this is a red flag. This indicates that the lender is only interested in getting as much payment as they can out of you, is not concerned with mortgage terms that are beneficial to you, and will just repossess the home at the first sign of trouble.

Penalty for Prepayment

Prepayment on your mortgage, which means you pay it off early, should never have a penalty that you have to pay tacked on. In fact, the practice of doing this is now outlawed; however, there are still some scammers that will try to do this. If you see anything noted about a prepayment penalty in your mortgage paperwork, it is definitely scam, and you should back out immediately.

Bad Credit and No Credit Offers

When you are approached or see a lender stating that they will approve your loan even if you have bad credit or no credit history, stay far away. Loans like this are considered “predatory” in that they are attempting to take advantage of individuals who are having trouble getting traditional loans. Your terms are guaranteed to be poor with a loan like this.

Lack of a Good Faith Estimate

With any mortgage lender, within 3 business days after you turn in your application for a mortgage, the lender needs to respond with what’s called a “good faith estimate”. When they provide this it will provide you with the cost of the loan and should be presented to you on a standard HUD-GFE form; as a precaution, if a company doesn’t do this or doesn’t put it on the standard form, walk away.

Presence of a Balloon Payment

When you’re reviewing your loan terms, if there’s mention of a balloon payment at the end of your mortgage terms, don’t take the loan. A balloon payment is a large lump-sum extra payment due at the end of your mortgage when you have paid it off; the balloon payment has been known to equal the entirety of the loan at times.