Whether or not you’ve ever applied for a mortgage before, you’ve probably heard the term “predatory lending.” It’s pretty much how it sounds (meaning you want to avoid it), yet is more common than you might think, even in Boston.
Like “predatory” anything, those who do it are good at getting away with it. They advertise too-good-to-be-true mortgage scenarios, and are especially adept at attracting new or young home buyers, as well as the elderly.
While the first rule is to be very wary of the aforementioned too-good-to-be-true mortgage sales tactic, there are other ways to spot and avoid predatory lending. Here are five of them:
1) “Bad Credit, No Credit, No Problem” is a Problem
Let’s face it: credit is very important when applying for a mortgage. Of course there are times when those with less-than-stellar credit can get a loan, but beware of lenders who make sweeping credit statements, trying to reel you in and convince you that a credit score of 450 is totally fine. Credit matters. If your credit isn’t great, talk to an established, reputable mortgage broker about your options.
2) Adjustable Rates that Go “Boom”
Exploding adjustable rates are those that start low and then rise significantly, suddenly making your rate (and home) unaffordable. If you are offered an adjustable rate, make sure you know how much it can rise.
3) Inflated Rates
Some predatory brokers will bump up the interest rate to much more than the lender’s actual rate, making money in the process. How do you spot this? Ask him or her.
4) The Bottom Line
Omissions of the truth can count as lies. Case in point: borrowers who are quoted a very low monthly mortgage payment, only to find out their lender left out insurance, taxes, and other fees. Make sure your quote includes everything.
5) Prepayment Punishment
Do you really want to be penalized if you decide to pay your mortgage off early? The prepayment penalty is often quite high, and it’s something most borrowers want to avoid. Be sure to inquire about this before making any decisions.