mortgage

7 Mortgage Scams to Avoid

With mortgage fraud on the rise, homebuyers are more prone to falling for a mortgage scam. A house is one of the most expensive items that you can buy in your lifetime. To protect your money and your investment, look out for the following fraudulent activities when dealing with home loan providers in Orem, Utah and other locations:

1. The mortgage lender does not consider your capacity to pay

A mortgage should be less than 28% of your take-home income. If a mortgage company is more keen on getting you to sign the contract than considering your financial capacity, you may not want to proceed with the deal.

2. You would need to pay prepayment penalties

When you decide to pay a mortgage payment early, you should not be charged a penalty. A mortgage lender that charges a prepayment fee (which can go up to 5% or more) is probably a scam. Moreover, these kinds of fees are illegal for houses that are already occupied by the owners.

3. The company targets people with bad credit

If a mortgage company approaches you saying that they will lend to you even if you have bad credit, it’s a sign for you to run away. These lenders target people with low-income or bad credit who are more likely to fail with mortgage payments.

4. The lender pushes loan flipping to their clients

mortgage loan

Loan flipping is the process wherein a lender induces the borrower to repeatedly refinance their existing mortgage. This is usually the behavior of predatory lenders. With each refinancing transaction, the borrower typically borrows more money while the lender charges higher fees and points.

5. The loan costs are too high

Loan costs are usually fixed regardless of the amount that you borrow. If you get a larger mortgage, the closing fees should be around 2-5%. For loans that are less than $150,000, the loan costs may be higher than 5%. If you are talking to a lender that is costing you way more than 5%, you should reconsider your options. Alternatively, ask the lender to explain why the costs are high.

6. Your lender is inflating your income or the home’s value

An unscrupulous lender may inflate your income or the value of the home you’re going to buy so that you can qualify for the loan. This practice is both unethical and illegal. If your lender does as much as suggest this, stop doing business with them immediately. Even if you proceed, you will most likely not afford to pay the mortgage anyway.

7. The company has a bad reputation

Do your research before consulting with a mortgage company. If a lender has a bad reputation, think twice before doing business with them, no matter how good their deal seems.

A mortgage is a huge responsibility that you will carry for many years to come. To protect yourself and your finances, be sure to watch out for the warning signs of a scam and work only with a qualified and reputable loan provider in your location.