Sunday, April 5, 2015

morgatge scams

10 signs you're dealing with a mortgage scam

Every industry has its shining stars and bad apples. The mortgage industry is no exception. For most consumers, a mortgage will be the largest single purchase they make in their lifetime. This makes picking the right mortgage lender even more important. How do you know which companies to avoid? Look for these telltale signs.
1. Not Taking Into Account Your Ability to Pay
Your mortgage payment should be no more than 28% of your gross monthly income. It’s not the mortgage company’s job to create your household budget, but it should have a lot of questions regarding your finances. If it doesn’t, it's probably not a company you want to deal with.
2. A Lot of Points
A “point” or “discount point” is like prepaying your mortgage interest. Borrowers purchase points to lower the amount of interest they will pay on the loan. Excessive points built into the loan – more than 3% to 4% of the total loan amount – is a sign the terms may be questionable. Go somewhere else.
3. Excessive Loan Costs
Expect the closing costs of your mortgage to be between 2% and 5%, with 5% bordering on excessive. If the costs are more than 5% of the total cost of the loan, you can find lower costs elsewhere.
[Shopping for a mortgage? Click to compare rates from trusted lenders now. ]
4. Prepayment Penalties
Lenders shouldn’t charge a penalty if you pay off your loan early. Unscrupulous lenders may charge prepayment penalties of 5% or more. This fee may make it difficult for you to get out of the loan later.
5. Brokers Who Inflate the Interest Rate
If you’re working with a mortgage broker, ask if he or she will be paid a “yield spread premium.” If you're told yes, go somewhere else – it means that the broker is making money by charging you a higher rate than the one for which you qualify. No need to end up with a higher interest rate. (See Investopedia's "Advantages And Disadvantages Of Using A Mortgage Broker.")
6. “Bad Credit Doesn’t Matter.”
If you see this, don’t call, don’t e-mail, and don’t say yes to anything if the company approaches you. These are probably instances of "predatory lending" and will almost certainly come with terrible terms. These types of loans normally target lower-income individuals who are more likely to have damaged credit.
7. Balloon Payments.
A lump sum due at the end of the loan term. Sometimes the balloon payment can be as high as the amount originally financed. Don’t be enticed by the seemingly better terms prior to the balloon payment. The math won’t work out in your favor.
8. Income or Home Value Inflation
A lender shouldn’t help you qualify for a loan by inflating your income or the value of the home. First, it’s not ethical or legal and, second, you can’t afford the loan anyway. If they’re willing to lie for you, they’re willing to lie to you. Not a company you want to do business with.
9. No Good-Faith Estimate
Within three business days of receiving your mortgage application, a lender must provide a good-faith estimate, or GFE. The GFE provides you with basic information about the loan including estimated costs of the loan. The estimate comes on a standardized HUD-GFE form that has to be used. If it comes on any other form, or you don’t receive the GFE within three days, don’t use that company.
10. Fees Different From the GFE
Your good faith estimate will contain an itemized list of costs associated with the mortgage with some very exact figures. Based on certain factors, it won’t necessarily remained unchanged when you receive the final mortgage paperwork to sign. Some of the fees are allowed to change by as much as 10%. Others shouldn’t change at all. Read the Consumer Financial Protection Bureau’s explanation of fees. (See also Investopedia's "Are good-faith estimates (GFEs) accurate?")
The old saying still rings true. If it sounds too good to be true, it is. Don’t fall for predatory loan tactics that may put you into a loan you can’t afford that has terrible terms.
Use the many websites dedicated to helping you find the right mortgage. Additionally, talk to your bank or credit union; read Investopedia's "How To Spot A Predatory Lender"; and, if you're considering a reverse mortgage, read Investopedia's "5 Reverse Mortgage Scams."

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