Purchasing your first home?
Refinancing your current home?
Need a home equity loan?
Protect yourself from dishonest, predatory lenders. Some mortgage and home equity lenders try to pressure consumers into signing loan agreements they cannot afford or simply are not in consumers’ best interests. Be careful! You could end up further in debt or even lose your home.
Predatory lenders use slick and deceptive sales tactics to convince you to sign a loan contract before you have had the chance to review the paperwork and do the math. Almost anyone can fall prey to these abusive lending practices. You can protect yourself by being aware of the common warning signs of predatory lending:
- Watch for exceedingly high interest rates and hidden inflated fees.
- Beware of “Bait and Switch” tactics – where a lender initially offers one set of terms, but then pressures the borrower into signing a contract with more expensive terms and hidden fees.
- Avoid loans from door-to-door salesmen and pitches for home equity loans related to un- solicited home improvement contracts.
- Look out for mail and television ads that claim “No job? No credit? No Problem! You can still qualify for a loan based on your home equity.” Remember, if it sounds too good to be true…it probably is.
- Walk away from high-pressure sales tactics to sign a loan contract right away. If the offer is good today, it should be good tomorrow – after you have reviewed the contract and consulted a knowledgeable financial advisor.
UNDERSTAND YOUR CONTRACT
When purchasing a new home or refinancing an existing mortgage, consumers must make important financial decisions. Be sure that you are well informed and aware of all your options. Listed below are several terms that are frequently used in the lending industry.
Knowing them is the first step to understanding a loan contract and making an educated borrowing decision. Before you sign any loan document, be sure to review the following terms in the contract:
Know the Annual Percentage Rate (APR) – This is the cost of your credit as a yearly rate. When shopping for a loan compare the APR offered by various lenders.
Know the Finance Charge – The finance charge is the dollar amount the credit will cost you. It is based on the APR, the amount borrowed and the length of the loan. Beware of hidden charges!
Know the Amount Financed – This is the dollar amount of the credit that is provided to you by your lenders.
Know if You are Paying “Points” – “Points” are fees you pay to a lender to obtain a real estate secured loan. These prepaid finance charges are not refundable.
Know the Total Number & Exact Dollar Amount of Each Payment – This will help you determine if the loan is within your budget. It is important to also consider other possible contract terms, such as “balloon payments,” when examining the cost and affordability of the loan.
Know the Payment Date – This is the date the payment must be received by the lender.
Know about Collateral – Collateral is property that is used to secure a loan. If a borrower defaults on the loan, the lender may take your collateral. In a real estate loan your home is your collateral.
Know the Total Dollar Amount of Payments – The total amount paid over the term of the loan after you have made all payments as scheduled.
Before you sign a mortgage contract or refinance your home, review the following tips to help you make an informed decision.
Shop around for the best loan. Visit several reputable lenders. Compare interest rates, fees and points, and examine all the terms of the loan. Talk with family, friends and neighbors about where they obtained their mortgages and their experiences. The differences may surprise you and could help you save a fortune!
Manage your money. Review your income and expenses and borrow within your budget. For assistance, contact the Division of Financial Institutions at 1-888-298-8089 and ask for the MAP to Home Ownership financial worksheets. To view all 6 forms click here.
Ask questions about the terms of the loan! Check the contract to confirm that the terms you have discussed are clearly written in the loan documents.
Read the entire mortgage contract carefully. Make sure you fully understand your obligations and all provisions of the contract before-signing.
Talk to a knowledgeable and trusted financial consultant prior to signing a loan agreement. Remember, never allow yourself to be pressured to sign a contract that you are uncomfortable with or do not understand.
For a list of housing and Urban Developement approved counseling agencies please click here.