How To Spot Predatory Lenders

From the wealth of information out there, we pulled together this essential list of warning signals to watch for when you're shopping for a mortgage.

Beware of:

Excessive early-payment penalties. Up to 80 percent of subprime mortgages carry a fee for paying off the loan early, according to the Center for Responsible Lending. Watch especially for penalties that are in effect for longer than three years or cost you more than six months' worth of interest.

Subprime or nothing. Predatory lenders often push subprime mortgages even when borrowers qualify for a mainstream loan. Always ask how they've qualified you after you've received an offer.

Unnecessary products. Lenders build extra services or unneeded insurance into the loan to pad their income.

Signing away your legal rights. Watch out for language that forbids borrowers' use of legal help and the court system if they find their home ownership is threatened by loans with illegal or abusive terms; such language makes it less likely that borrowers will receive fair treatment in case of wrongdoing.

Unauthorized refinancing of your loan. Don't let lenders "flip" or refinance your mortgage in a manner that robs you of your home equity.

Vague or aggressive sales tactics. Beware of lenders who solicit you with offers that seem too good to be true or won't answer your questions clearly. Another common scam is to work the "offer good for a short time only!" angle. A mortgage loan isn't a gallon of milk—succumbing to anyone pressuring you with this line would be an unwise decision.
Ask TOH users about Home & Real Estate

Contribute to This Story Below