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Homeowners Beware!
You may be a target for abusive lenders trying to sell you a loan you can't afford. If this happens, you may be unable to make the high payments and lose your home at a foreclosure sale or spend all of your spare cash paying off a loan you didn't need or want.
SCAMS TO AVOID
Lenders use many scams to sell high-cost loans. Any one of these practices should tell you that something is wrong.
- Loan Flipping:
A lender refinances
a loan over and over again. These
lenders usually charge high points and
fees, which are included in the amount financed?
so you are paying interest on the
loan and on the fees. The lender may also
promise that you can refinance later if you
are unhappy with the loan or that your
monthly payment amount will go down
if you make timely payments. These statements
are usually false and just another
way to get more fees from you.
Unaffordable Loans:
- Unaffordable Loans:
A lender may sell you a loan you can't afford.
If you can't pay, the lender can foreclose?taking your home, stripping you of the equity you have spent years building,
and blaming you for the false information
on your application! You may also
be unable to make high monthly payments
because the lender charged you high fees.
- Mortgage Brokers:
Most abusive loans involve a broker. The broker should be interested in helping you, but the crooked ones are only looking out for themselves. The loan will always cost you more if there is a broker. Sometimes, the broker will
sell you a loan that costs much more than is necessary and get a kickback from the lender.
- Hidden Loan Terms:
The lender includes a "balloon" payment(sometimes as big as the amount you are borrowing) that must be paid at the end
of the loan term. A balloon payment is an
amount due after you are finished making
all of your monthly payments; most people need to take out a new loan just to pay off the balloon. The lender may also include expensive prepayment penalties
which could prevent you from paying off
your loan early with a cheaper loan from
another lender. Another trick to get more
money from you is to sell you a loan with
an "adjustable rate" that only increases.
Your monthly payment will go up during
the term of the loan, but never down.
- Door-to-Door and Home Improvement Scams:
A contractor offers to do some work on your
home, saying he can also arrange the financing
for this work through a lender. Once you agree, the contractor begins work. The lender then appears with papers to sign. The lender may rush you into signing the documents or the contractor
may threaten to stop working until the papers are signed. If you sign, you may receive a more expensive loan than you were expecting?and the contractor may not be interested in finishing the job, since he has already been paid by the lender. Often, the contractor's work is poorly done and not worth the price you paid.
- Be cautious:
Be suspicious of anyone
who offers you a "bargain loan" or "consolidation"
loan, whether they send you an
offer, call you on the phone, or come to your
door. Don't rely on salespeople who promise
easy credit. Be suspicious of anyone who
contacts you first.
- Shop around:
If you need a loan,
take your time and explore your options. You
may qualify for a loan with lower rates from
a reputable bank or credit union. Don't forget
that high-cost lenders are counting on
your belief that you cannot get credit on better
terms elsewhere. Do not let feelings of
embarrassment about your past problems
stop you from shopping around for the best
credit terms. Whether you are borrowing for
home repairs, medical expenses, or for other
reasons, compare total costs of the loan and
interest rates. A loan with a lower interest
rate and high fees may be a worse deal than
a loan with few fees and a higher interest
rate.
- Ask questions:
Before borrowing money, know exactly what the lender is offering. You have a legal right to receive paperwork before the day you sign showing the total cost of the loan, the annual percentage rate, the monthly payments, how long you'll have to pay back the loan, and a list of the closing costs. Make sure all fees and points
are explained. Ask if there will be a balloon payment at the end of the loan term.
- Read carefully:
Whenever you
borrow money, don't sign anything you don't
fully understand. Ask for the papers in advance
or ask a lawyer, trusted friend or family
member to go with you to the loan closing.
Never sign a document with blank
spaces. Make sure the dates on the papers
are correct too.
- You can change your mind:
You can back out of the loan at
any time before you sign. If the loan terms
change or something else surprises you, you
can stop or delay the signing. If you've already
signed a contract to borrow money that
uses your home as security, and the money
is for personal purposes other than purchasing
the home, the law allows you to change
your mind within three business days of signing
the contract. This means you can cancel
the loan, even though you already signed,
and get a refund of your closing costs.
- Get help:
Seek legal help immediately
if you think you have an abusive loan. Contact
your local legal services or legal aid office
to see if you qualify for free legal assistance,
or contact the local bar association to
be referred to an attorney.
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