Buying or refinancing your home is a major life decision that can be complex and, at times, risky. Most lenders and real estate professionals are focused on helping, however, predatory con artists are focused on hurting uninformed homebuyers through lending or loan fraud. Here are a few safety tips to help you be a smart home loan customer and avoid home loan fraud.
- Take a Class. The U.S. Department of Housing and Urban Development (HUD) has a list of approved counseling agencies that offer special courses about the basics of homeownership. These courses will cover the fundamentals of financing (what costs are associated and how they factor in at closing) and help you to be able to tell when a loan seems fishy.
- Do Your Homework. Make sure to check out more than one real estate professional. Also, ask for references before you pick a Realtor, and check around the neighborhood to see how much other houses sold for. This will not only help to avoid fraud, but could get you a less expensive home.
- Consult Trustworthy Professionals. When looking for a lender, be wary of those pushing you towards only one lender that is not obviously credible. Along with this, make sure to bring in a home inspector and stipulate who will fund repair costs and if they must be completed prior to purchase.
- Be Honest on Your Application. Never let anyone sway you into lying on your loan application, by embellishing your income or fibbing about your employment history. Lying on a mortgage application constitutes fraud and may result in criminal prosecution with penalties.
- Be Honest With Yourself. Realize what you can realistically afford, and don’t let anyone talk you into something more expensive than that. If you are unable to make your payments, you could lose your house and all the financing you invested into it. Also, make sure to tell others if you plan to rent the house you are purchasing rather than stay in it yourself long term. By neglecting or lying about these details you may be breaking federal law.
- Avoid Documentation Mistakes. Never sign a blank check or document containing blanks. If you have already signed, someone can add in new information that you are still contractually obligated to fulfill. Also, never sign anything you don’t fully understand, or haven’t fully read. In the case of a mortgage involving many thousands of dollars – if not hundreds of thousands—it is good to have an attorney who has specialized in real estate law read over your agreements. On a similar note, make sure to be suspicious if home improvement costs increase significantly if you don’t accept the contractor’s financing.
- Understand Predatory Lending. There are several ways faulty lenders make money. Some sell properties for far more than they are actually worth. Others lend more money than the borrower can pay back in the long term. Often these con artists attempt to dupe unsuspecting borrowers out of their money through high-pressure sales.
- Tactics to Look Out For. Be wary anytime a lender suggests they are the only way to get you a new home and urge against comparison shopping. Con artists will try to force you to sign and provide false information in documentation or change the costs of loans from what you agreed. Some will even say your property is protected under “Federal Housing Administration insurance”, which is a lie. Also keep in mind if a house is far more expensive than anything else in the region, your agent or contractor is likely trying to pull the wool over your eyes.
Buying your first home should be an exciting time, free from the hassle of faulty loans and over-paying. Make sure to follow these tips to prevent yourself from falling victim to home loan fraud. Check out these tips and other housing public service information at the HUD website. Also check out the Consumer Financial Protection Bureau (CFPB) for additional information.