Home ownership and predatory lenders
Choose a mortgage lender carefully to protect your financial future
In recent years, we´ve had the luxury of low interest rates which has made it possible for even folks with modest incomes to afford to buy homes. However, as interest rates rise the proliferation of predatory home mortgage lenders is likely to increase.
As loans become more difficult to come by, consumers are more likely to become victims of lenders who are more interested in lining their own pockets than in providing loan products that benefit them. There are just a few bad apples, but you need to be aware that you could be taken advantage of if you´re not vigilant.
The key is knowing what your credit scores are and tracking them. There are three reports (Experian, Equifax, and TransUnion) that comprise your FICO score. With a good credit score (700–850) you should qualify for good rates and competitive loan packages. That´s why it´s so important to shop around and compare lenders. Predatory lenders may attempt to place you in a subprime loan vehicle with much higher rates because it benefits them, not you.
To further protect yourself, become a savvy consumer and understand as much as you can about home loans, property values, and real estate. It´s a huge, complicated subject, but anything you learn can protect you and your investment.
- Take a class in home ownership education class approved by the US Department of Housing and Urban Development. Not only will you learn about the intricacies of purchasing a home and loan options, you may also find that you are eligible for programs such as the First Time Home buyer.
- Hire a real estate agent to represent your interests. Don´t rely on calling the name listed on the sign in the front yard of a home you´re interested in. That agent represents the seller. Though many agents are able to represent both parties, you deserve your own advocate in finding and negotiating the terms of acquiring a new home.
- Comparison shop. How much are homes valued at in the area that interests you? Is the home over-improved? Is the seller asking much more than the value of its next door neighbor? Some sellers make improvements to their homes unrealistically assuming that if they put it in, they will get it out. One rule of thumb is to buy the least expensive property you can find in the best neighborhood you can afford. Then you can make the improvements you want to bring the home into the same price range as neighboring homes. Bottom line: Don´t get trapped into buying more house than you can afford.
- As with real estate agents, get estimates from several lenders. Do NOT automatically work with the lender recommended by the agent. Ask for a copy of the standard contract so you can read it at home line by line, then ask questions. When you are in the process of closing on the house and have a three-inch pile of legal documents to initial and sign in front of you, you won´t be stopping to read them.
- NEVER make misleading or false statements on loan applications. If someone (like the lender) suggests this to you, run for the door. Falsification of information on a loan application could result in criminal prosecution. Overstating income or financial resources is also the way you can get sucked into a loan that you can´t meet and could result in foreclosure.
- Remember when you parents told you never to sign a contract without reading it? It´s still true. Even the most careful people get hurried and fail to read the fine print. Later, the most innocuous things can come back to haunt you and cost you big time. Also, never sign anything with blanks on it. Write something, draw a line through it, or add Not Applicable to prevent someone from adding something once your signature is on the page. Take your copies and store them in a safe place.
- HUD suggests taking your documents to a real estate lawyer for review. If you can´t afford a lawyer, you may be able to find a HUD-approved housing counseling organization that can review your paperwork or refer you to a low-cost attorney.
Payday Loans: Predatory Lending
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