TIPS FOR SELECTING A LENDER
- Don’t take the first loan you are offered; shop and compare.
- Don’t give in to sales pressure. Don’t be rushed. Remember, you can always say you have to check with someone else before selecting a lender.
- Don’t sign a blank document or anything the lender promises to “fill in later.”
- Don’t sign anything you don’t like or understand, even if they cancel the loan offer.
- Ask a lot of questions.
- Always check the numbers!
- Remember, a low monthly payment isn’t always a good deal. Look at the total cost of the loan.
PREDATORY LENDING PRACTICES
Be careful when selecting a lender. Predatory lenders try to cheat borrowers through fraud or lies.
- Encouragement to include false information
If a lender has changed any of your income or expense information or leaves your income blank, do not sign the loan application.
- Blank loan documents
Never sign a blank loan document or work with a lender who asks you to.
- “Bait and switch” sales tactics
This is when a lender makes promises in order to make the sale, but then backs out on the promises after the sale. To avoid this, it’s critical to carefully read and understand the agreement before you sign. Question anything in the document that is not consistent with what you were told. Don’t sign the agreement if anything in it is unclear or not as promised.
- Equity stripping
Let’s say you don’t have much monthly income, but you have built up equity in your home. If a lender encourages you to say you have more income than you really do on your application form to help get the loan approved, watch out! A predatory lender doesn’t care if you can’t keep up with the monthly payments, because as soon as you can’t, the lender will foreclose. This means they can take your home, and you’ll lose the equity you have spent years building.
- Loan flipping
This is when a lender persuades a borrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees each time. This is not in your best interest because it costs you money and postpones the loan principal from being reduced.
- A high fee for bi-weekly payments
Some lenders will offer you the option to pay your loan bi-weekly. Although this type of payment plan can reduce the finance charge and length of a loan, predatory lenders may charge you $1,000 for the “privilege” of paying biweekly. In reality, such accounts can often be set up for free or a few hundred dollars at most.
- Required deed signing
If you are behind on your mortgage payments, a predatory lender may offer to help find new financing. But first you are asked to deed your property over to the lender as a temporary measure to prevent foreclosure. But then the promised loan never comes, and you no longer own your home.
- Advertisements promising “No Credit? No Problem!”
These are often warning signs of scams. Consumers responding to such ads are guided through a phony application process and may even receive fake loan approval documents. To receive the approved loan, they are told to pay money up-front for fees or services — and instead end up losing their money.
- Promises to refinance the loan to a better rate in the future
No one can make you that promise. Instead, ask what you can do now to get a better rate. If you’re working with a local bank, for example, there may be a rate discount for making automatic monthly payments from your checking account.