The process of obtaining a mortgage for your home can be very confusing. There are many parties involved in your mortgage and it can be easy to become overwhelmed by all of the new information. Taking out a mortgage is not as simple as just paying the price of the home over a certain period of time. There is interest factored into your payment along with principal, tax and insurance. When your house gets foreclosed it's easy to throw your hands in the air and say, “It's not my fault, I must be a victim of predatory lending!”. However, this is not always a reasonable conclusion. Here are the signs to look for in order to figure out if you are truly a victim of bad lending.
The lender tells you it's okay to falsely report your income.
An honest lender will NEVER tell you that it's okay to lie about your income in order to get a bigger loan. Lying about anything on a loan application is known as mortgage fraud and it is a crime punishable by penalties and jail time. You, as the one who filled out the application, will be punished for the lie.
The lender pressures you into a bigger loan.
You should not borrow more money than you need, and your lender should not encourage you to do so. Your lender should respect your budget if you want to stay inside your comfort zone. Sometimes borrowers are approved for more money than they need. This does not mean you should borrow the amount of money you are approved for! Take your extra money and put it away in savings, and don't be afraid to find a different bank to work with if the lender keeps on pressuring you to “splurge” on a home that's beyond the comfort of your budget.
The lender doesn't disclose documents.
A lender is required by law to provide you with loan disclosures for your review within 3 days after you apply. Stay away from a lender who does not provide you with these disclosures, or better yet, tells you that you don't need to read them. You do need to read them. These forms will tell you the terms of the loan, the monthly payments, and the other fees associated with the loan. You should use this information when you loan shop to compare each loan's fees and terms. If a lender tells you not to worry about these disclosures, you should walk away.
The lender promises one thing, but delivers another.
A lender should not present you with one set of terms during the application process and then present you with a different set at closing. This is a scam known as “bait-and-switch”. The lender is hoping to pressure you into signing for a loan with less favorable terms than you originally negotiated. You should demand an explanation for this. The lender was hoping that you would not review the terms on closing day and wants you to sign assuming nothing has changed. If you feel that your lender has pulled this trick on you, take your business somewhere else.
The lender encourages you to sign blank forms.
It is never okay to sign a blank form in any context. When you sign a blank form, a blank check, or a blank anything, you are consenting to terms that you are unaware of. In the context of a loan, the lender can take your signed blank form and change it to whatever terms and conditions the lender wants. If there is a line that will remain blank after you sign, you can cross through it and initial your mark.
The lender offers you abnormally high interest rates.
Lenders make money off of your borrowing through interest. If your lender offers you an unusually high interest rate, that shows you that they are more interested in making money than they are in helping you get a loan. Your loan agreement should detail exactly how your interest rate is calculated. If the numbers don't add up or the calculation is not mentioned at all, you should ask some questions.
The lender charges you fees because of your low credit score.
It is normal and reasonable for lenders to charge a higher interest rate to people who have bad credit. This is because a low credit score indicates to the bank that you have had poor spending habits in the past, which makes lending you money a high risk for the bank. It is not normal for lenders to pile on a bunch of fees and interest charges and then say it's because of your bad credit. Make sure you are aware of your credit score and become familiar with reasonable rates for your credit score. This way you will know if you are being scammed or not.
Your lender offers you a loan that doesn't require a credit check.
This may seem too good to be true, and that's because it is. These loans are usually secured by an asset like your car title or your home equity. This means that if you default on this loan the lender can claim the car or the house as their own to recover the cost of the lost money. This is called equity stripping, and is specifically used to take advantage of homeowners once they go into foreclosure. A regular loan will always require a credit check.
Your lender rushes you to finish paperwork for approval.
Your lender should not rush you to complete paperwork or tell you to merely skim it to save time. You need to take your time when reading to ensure that you understand and can afford the loan you are agreeing to. If you are being rushed through paperwork, this could mean the lender is trying to hide something from you. Take special care to look out for anything that is unexpected in the documents.
If you feel that in your encounter with a potential lender you have experienced these practices, or even with your lender that you got your loan from, you could be a victim of bad lending. However, just because you don't understand the terms of your mortgage does not mean that your lender was trying to hide something from you. Make sure you ask a lot of questions before you jump to the conclusion that your lender has practiced predatory lending.