They never fail to surface once real estate activity shifts into high gear: the home loan scam operators. They seem perpetually ready to pounce on unwary would-be home buyers—notably those who are unfamiliar with the standard procedures employed by established mortgage lenders in the normal course of preparing a legitimate home loan or refinancing package.
Falling prey to an unscrupulous mortgage scam can result in anything from inadvertently divulging personal information all the way to significant monetary losses—including home title fraud that takes expensive and time-consuming legal action to correct.
One simple way to protect yourself from some of the common home loan scams is to acquaint yourself with signs that an offer probably isn’t on the up-and-up. If you see any of these bullet-pointed red flags, it’s time to find out more about who you are really dealing with—or simply to hit the exit:
- The lender isn’t particularly interested in your ability to pay. A lender who proposes monthly payments that exceed 28% of your gross income fits that category.
- If the phrase “bad credit doesn’t matter” appears in an operator’s advertising or communications, get rid of them.
- If a lender encourages (or even hints at) “fudging” the numbers on your application, drop them. The simplest “fudge” constitutes mortgage fraud, which is a crime—and legitimate lenders don’t tolerate it.
- If the cost of a loan for less than $150,000 exceeds 5%, find out why. Most home loan closing costs range between 2%-5%.
- No GFE. Lenders are required to provide a Good Faith Estimate of the loan costs within three business days of receipt of your application. Failure to do so is a red flag.
- If the final loan documents show closing costs that differ significantly from the GFE, check the Consumer Financial Protection Bureau’s website to judge whether the changes are legitimate. The CFPB is a government bureau that makes sure you’re being treated fairly.
This warning sign list isn’t exhaustive, but any offer that fits the “Too Good to be True” definition likely belongs on it. As with all home loan dealings, applying your own good judgment is always a good place to start.