Since buying your own home is one of the most important and complex financial decisions you will ever make, the most important part of the home buying process is finding a mortgage loan that is affordable in terms of your monthly budget and contains fair terms and reasonable costs. Unfortunately, many home buyers are not aware that some mortgage loans are not in their best interest and are tricked into entering into mortgage loans that will ultimately lead to financial problems and possibly bankruptcy and foreclosure.
Each year, many unsuspecting home buyers, often first-time home buyers or senior citizens, become victims of predatory lending or mortgage loan fraud. Since the term “predatory lending” covers such a wide range of abusive and damaging practices, there is unfortunately no single and universal definition of that term. However, listed below are several common examples of the problems normally encountered with predatory mortgage loans:
High interest rates and fees: Predatory lenders often charge extremely high interest rates and fees that are added into the total amount of the loan the borrower must repay. These lenders charge what they can get away with, not a fair amount based on the credit history of the borrower.
“Bait and switch” loan terms: Sometimes home buyers are offered a new mortgage loan that seems to meet all of their needs only to find that interest rates and fees have changed when they get to the closing table. Agreeing to last-minute changes can cost thousands of dollars and result in a mortgage loan that the home buyer cannot afford.
Loans that start low and go high: Adjustable rate mortgage loans (ARMs) are popular, but many that seem to be affordable are likely to have steep cost increases in the future. Avoid “payment shock” by considering whether you can pay for the loan both now and in the future.
Steering: Some families who receive subprime loans could qualify for a much more affordable mortgage loan. Predatory lenders often use aggressive sales tactics to steer families into unnecessarily expensive mortgage loan products.
If you would like more information on how to avoid predatory lending, there are many valuable resources available for you to utilize during the home buying process. Please take the time to review the information available on the following resources: