As a home buyer, you probably plan to finance at least part of your house by taking out a mortgage. Obtaining a home loan can be a daunting experience as it is, but unfortunately, a number of predatory companies have popped up over the years to complicate matters even more. While predatory lenders are typically small, unlicensed businesses who target their scams toward inexperienced buyers with poor credit, even large, reputable banks have been found guilty of using predatory lending practices. While you’re shopping for a lender to help make your dream of home ownership a reality, follow these tips to ensure you don’t get ripped off and fall victim to a common lending scam.
1) Look Out for Loans That Start With Interest Only Payments – Some lenders might try to get you to agree to a loan term that begins with interest only payments, but this is highly problematic for you as a borrower. Such loan terms often look beneficial at first glance through the eyes of a borrower, because the initial payments are low. However, when you enter into this sort of agreement, you won’t make any progress toward paying off your principle balance for the duration of the interest only payment term – meaning your ultimate goal of owning your home fully will be even further postponed. The monthly payment on interest only loans also tend to skyrocket over time, so while the low payment may be attractive to you today, you might not be able to afford your payment at a later time.
2) Check for Early Payment Penalties in the Fine Print – Some homeowners want to pay off their mortgages as quickly as possible, and some lenders will do anything in their power to prevent them from doing so. Check with potential lenders to make sure they do not include penalty fee in the fine print of their contracts that will prohibit you from making extra payments toward your loan to reduce the amount of interest you have to pay.
3) Stay Away from Lenders With Excessive Upfront Fees – A good rule of thumb as a borrow is that the amount of upfront fees a lender charges is highly indicative of how unfriendly their general loan terms will be. If a lender is out to squeeze every penny they can from you from the moment you start negotiating a mortgage rate with them, you can rest assured that they will nickle and dime you through the duration of your loan term if you borrow from them.
4) Avoid Lenders That Try to Push You Toward Options You’re Not Comfortable With – As a borrower, you do need to be a bit flexible in regard to your interest rate and term length in order to reach an agreement with a lender. However, this doesn’t mean you have to let a lender walk all over you or force you into an option you aren’t comfortable with. If a lender keeps pressing you to agree to a specific option no matter how many times you state that you don’t want to go with it, it’s time to meet with another lender who will be more willing to work out a deal that benefits you both.
5) Obtain a Copy of the Exact Loan Terms at the Time of Signing – Believe it or not, some lenders will ask you to sign a mortgage agreement and then refuse to give you a copy to keep for your own personal reference. If a lender refuses to give you a copy of the exact loan terms at the time of signing, put down the pen and find another lender.
Remember that LGI Homes offers a credit counseling program for buyers, so we can work with you to help you achieve a real deal on your mortgage. Our free, confidential program will help bring you closer to your dream of home ownership, and our experienced mortgage specialists can help find the perfect home loan to finance the home of your dreams.
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