Purchasing a home can be a somewhat frightening situation, particularly if you are a first-time homebuyer who is not familiar with the process. After all, you are paying a great amount of money toward the price of the home as well as the interest that you must pay. The last thing you want is to work with an unscrupulous lender who will turn your dream of homeownership into a nightmare. To help make sure a predatory lender does not take advantage of you, keep an eye out for these 7 red flags.
Red Flag #1: Asks You to Falsify Information
An unscrupulous lender will encourage you to fudge the information in order to qualify for a loan. The lender will pretend he or she is doing you a favor by giving you these little “tricks” to get your loan approved. In reality, it could be putting you in a very difficult financial situation. Even worse, if your lie is uncovered, you could face significant fines or even be put in jail.
Red Flag #2: Pressures You to Borrow More Than Necessary
Borrowing more than you need to purchase a home only increases your payment burden while increasing the lender’s commission. Borrow only what you need and avoid paying interest on money you really didn’t need to borrow.
Red Flag #3: Pushes You to Accept Payments You Can’t Afford
No matter what the lender’s little formulas tell you, you are the only one who really knows how much you can afford to pay toward a mortgage loan each month. When calculating these figures, be sure to leave a little bit of wiggle room in case you run into an emergency. A lender who pushes you to go bigger is not looking out for your best interests.
Red Flag #4: Fails to Provide You with Loan Disclosures
Lenders are required to provide you with loan disclosures, including the annual percentage rate associated with your loan and an itemized list of your closing costs. These costs must be provided to you within three days after you apply for the loan. If the lender doesn’t provide it or tells you that you don’t need to read it, it’s time to get a different lender.
Red Flag #5: Makes False Promises
Unscrupulous lenders will sometimes pull a “bait and switch.” This means they present you with one set of loan terms when you apply for the loan, but then change the terms at closing. Sometimes, there is a reasonable explanation behind a change in terms, but be sure to study the terms carefully and be prepared to go to another lender if something does not seem right.
Red Flag #6: Encourages You to Sign Blank Forms
Signing blank forms is never a good idea. Never allow your lender to fill in blanks at a later time. Furthermore, if there are blanks on the form, cross them out and place your initials there.
Red Flag #7: Refuses to Give You Copies of Papers
You should receive copies of all of the papers that you are asked to sign. Many papers should be provided to you in advance so you can read through them and take them to a trusted advisor before you sign them. If your lender does not want you to have a set of the papers you are signing, cancel the deal and look for another lender. Only lenders with something to hide will try to keep you from getting copies of your paperwork.