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Nobody wants to get scammed but unfortunately, it's almost impossible to avoid it these days. You've probably read about the data breaches at Target and Anthem Blue Cross/Blue Shield and you can bet that there will be more in the future. Scammers can be very smart and no matter how carefulMortgage scams
While most mortgage lenders are honest and ethical every industry has its bad apples and so does this one. Here are the signs that the lender could be a scammer.
You may want to purchase points to reduce the amount of interest that you will be required to pay on the loan. If you find that points have been built into the loan of more than 3% to 4% of the total loan amount, this is a sign that the lender may be questionable. Your best option would be to go someplace else.
Not taking into consideration your ability to pay
A good rule of thumb is that your mortgage payment should not be more than of 28% of your gross monthly income. While it's not the lender's job to help you with your household budget it should ask a lot of questions about your finances especially about your income. In the event the lender doesn't, this is probably not a company with which you want to do business.
Penalties for prepayment
You should not be charged a penalty if you decide to pay off your loan early. Lenders that are unscrupulous will try to charge a prepayment penalty of 5% or more. This fee could make it very difficult for you to get out of your loan later.
Inflated interest rates
If you're trying to get your loan through a mortgage broker ask if it will be paid what’s called a "yield spread premium." If the answer is yes, run do not walk out of the office. This means that the broker is charging you a higher interest rate than the one you would actually qualify for. It's his or her way to make extra money and it's entirely unnecessary.
"Bad credit doesn't matter to us"
If a lender tells you that it doesn't matter whether you have bad credit this will probably be a predatory loan and will almost certainly have terrible terms. The sad fact is predatory loans are often aimed at lower-income people as they are more likely to have bad credit.
You may be offered very good terms if you agree to a balloon payment, which is a lump sum that's due at the end term of the loan. There are cases where this payment can be as high as the amount of money you originally financed. Don't be sucked in by what seems to be better terms prior to that balloon payment. Do the math and you may find that it won’t work out for you.
Inflation of home value or income
If a lender helps you qualify for a mortgage loan by inflating the value of the home or your income, avoid it. This is not neither legal nor ethical and second, if you can't afford the loan you’re just headed down a slippery slope towards trouble. Besides, if the lender is willing to lie for you they may be lying to you. This is definitely not a company with which you would want to do business.
There’s not a good a good-faith estimate
By law lenders must provide you with basic information about the loan including its estimated cost. This comes in the form of a good faith estimate on a form called HUD-GFE. If you don't receive the GFE within three days or it comes on some other form, just don't use that company.
If it sounds too good to be true
The net/net here is that if you're being offered a deal on your mortgage that sounds too good to be true it probably is. Make sure you don't fall for predatory mortgage loan tactics and up with a loan you can't afford or that has really awful terms. There are numerous websites available designed to help you find a good mortgage loan. Use one of them to make sure you're not scammed.