In cases of mortgage fraud for profit, scammers most commonly promise victims to save their homes from foreclosure with term modifications and debt management, or to entice buyers with free services and reduced interest rates. Scammers prey on vulnerable homeowners and prospective homeowners who lack education or financial security.
How To Spot Mortgage Scams:
‘Too Good To Be True’ Interest Rates
Mortgage rates that are noticeably lower than market interest rates are typically a sign of various hidden fees or even a bait-and-switch tactic. Predatory lenders may try to tell you that you no longer qualify for the advertised rate, or tack on additional fees after locking in the original rate if they think they can get away with it.
Your Loan Estimate Isn’t Honored
Your Loan Estimate gives basic loan information in a standardized format from the U.S. Department of Housing and Urban Development. It includes itemized costs of a loan, including fees, and is sent within 3 business days of a mortgage application. Lenders aren’t allowed to charge fees outside of the credit report fee prior to accepting the terms.
Under the Real Estate Settlement Procedures Act (RESPA), mortgage lenders are required to honor the Loan Estimate within the relative tolerance level. If these estimates aren’t honored outside of changed circumstances, be wary of predatory lending.
Mortgage Payment Scams
A mortgage payment should remain under 28% of your monthly income. The higher your debt-to-income ratio (DTI), the riskier you are for a mortgage lender. If your lender is recommending a type of home that requires a loan larger than 28% of your disposable income, be wary.
Homes Overvalued
Overvalued property creates risk for legitimate mortgage lenders by generating an inaccurate resale valuation or an inflated borrower income that will be difficult to pay off with existing income.
Penalties For Prepayment
A prepayment penalty is charged for paying off your mortgage too quickly or for refinancing. While prepayment penalties can offer lower overall interest rates, oftentimes, they’re hidden in the fine print of agreements. As a result, many borrowers don’t realize the stipulations of the penalties and are hit down the line with fees. Generally, these penalties are included as a way for lenders to make money on interest payments at the expense of the borrower.
Your Credit Score Doesn’t Matter
Your credit score will always affect your mortgage rate, without exception. If you’re being offered a home loan that states this score won’t affect the mortgage, be wary. These tactics are typically schemes that prey on low-income borrowers and generally come with undesirable terms.
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