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Beware of Predatory Lenders When Shopping for a Mortgage Loan
Sheryl LandrumLoanBiz Columnist
Financing has become very creative; unfortunately, so have the tactics predatory lenders use to exploit the borrower. Here are some red flags to be aware of when looking for a mortgage loan:
- High interest rate program. If a lender says you don't qualify for a prime loan program, find out why and get a second opinion. There is a huge difference between prime and sub-prime rates and terms.
- Hidden private mortgage insurance. First mortgage loans over 80% of the purchase, or appraised value, of a home require private mortgage insurance (pmi) by law. If a lender tells you they can give you a home loan over 80% without pmi, they are not being totally truthful; they are rolling the cost of the insurance into the loan amount. Home equity lines of credit and home equity loans were originally designed to help borrowers who did not have the 20% down to avoid pmi. Pmi is not tax deductible—interest on home equity lines and home equity loans is.
- Excessive pre-payment penalties. I would never recommend a pre-payment penalty over a year. Penalties for refinancing are usually six months worth of interest payments; on a 300,000 loan at 6.5% interest, the penalty for refinancing or selling the home would be $9,750. Ouch!
- Loan terms altered at closing. Don't get behind the eight ball. Ask for a Good Faith Estimate and a Truth in Lending Disclosure and never agree to a loan without them; don't sign loan documents without reading the documents and ensuring that what you were quoted and what you are committing to, are the same.
- Unlicensed loan officer. Not all loan officers are licensed--be sure you use a licensed loan officer. If your loan officer is licensed, you have recourse if you are unhappy with your loan.
About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.
