How to Avoid Predatory Lending
Most mortgage lenders and brokers have your best interests in mind. However, there are "predatory lenders" - lenders that act unscrupulously and may try to take advantage of you.
Although predatory lending is not defined by federal law and states define it differently, this type of lending usually involves loans with terms you can't meet - no matter how good the deal sounds - and practices that strip away the equity in your home.
Who do predatory lenders target?
Predatory lenders target people who may have fewer credit choices or are perceived as higher credit risks. Predatory lenders usually reach out to elderly and low-income homebuyers, minorities and women, people with less than perfect credit, and people who know very little about home loans and mortgages.
These lenders usually tell you that you can get loans with very low monthly payments, refinance your existing mortgage, or take out a loan or second mortgage to help pay for expenses like medical costs and home-improvement work.
How can you spot a predatory lender?
Predatory lenders usually offer loans with high interest rates; broker fees; unnecessary costs like pre-paid life insurance; and unaffordable repayment terms.
Be suspicious of anyone who offers you "bargain loans," whether they mail or E-mail you an offer, call you on the phone, or come to your door. Avoid promises of "No Credit? Bad Credit? No Problem!" and beware of offers that are only "good for a very short time." Rest assured that credit issues should not exclude you from obtaining a mortgage loan, however, you will have to pay a slightly higher interest rate and may have to make a larger down payment, than an individual with perfect credit.
Avoid lenders who encourage you to borrow more than you need or more than the value of the home. Beware of terms that change at the last minute or offer next-day approval based on prepayments or up-front fees.