It is a common misconception that predatory lending practices ended after the housing market crash. The truth is that buying and refinancing an Orange County home is still a complex and potentially hazardous ordeal. There are lenders out there who take advantage of homeowners. Failing to know how to avoid predatory home loans could cost you and your family your house.
The first step to avoiding predatory home lenders is to learn about the many tactics they utilize. Common predatory lending tactics that should send up red flags include:
- The sale of properties at unreasonable prices through the use of false appraisals.
- Knowingly lending much more money than a borrower can afford to pay back.
- Encouraging borrowers to exaggerate their income and available cash while lying about their expenses in order to get the loan.
- Adjusting interest rates with little to no consideration for the borrowers credit history.
- Charging fees for unnecessary services and products.
- Encouraging borrowers to request higher risk loans such as interest only payments, loans with steep pre-payment penalties, and balloon loans.
- Pressuring borrowers to accept second loans at high interest rates to cover home improvements.
- Targeting borrowers who are in financial turmoil because of unemployment, issues with debt, or medical bills.
You can avoid some of these tactics by acting with caution. Ask your friends if they have a trusted lender, and shop around. Compare costs and be suspicious if anyone encourages you to only talk to one lender. If your loan includes fees that are greater than 4 percent of your home mortgage loan amount, you should continue shopping around. Delay making any decisions until after you have received information about the value of similar homes in the neighborhood. You could otherwise be tricked into paying too much.
It is also advisable to use a qualified home inspector before deciding to buy a home. After the inspection, you can determine what improvements and changes for which you are responsible and which the seller should cover.
You can also protect yourself during the loan process by keeping in mind that a low monthly payment is not always the best deal. You should also consider speaking with a real estate attorney who can review your loan options before you make any crucial decisions that could affect your financial future.
McFarlin LLP is here if you have any more questions about Orange County home loans. You can reach us at (888) 728-0044.