Disreputable and unscrupulous lenders are constantly trying to trick unwary new and present homeowners into bad home loans. They promise one thing and hide the rest in small print. There are some warning signs of bad home loans that consumers can look for, to keep themselves from making expensive mistakes.
Encouraging False Information a Warning Sign
One huge warning sign of a bad home loan is if the lender encourages you to falsify information on the loan application. This includes income, employment, credit and home value. You don’t want to deal with a lender that falsifies documents in your favor. Chances are they will engage in other shady business practices that may negatively affect you.
Falsifying information on a home loan is fraudulent and illegal. This could cause you to be brought up on charges and effect any future loans you may need.
Encouragement to Borrow Extra Money Could be a Warning Sign of a Bad Loan
Any lender who encourages you to borrow extra money in your home loan that you don’t need is essentially engaging in bad business practices. There is no benefit to the consumer to carry more debt than necessary. It is one thing for a lender to include money to replace an uninsurable roof, as carrying home-owner’s insurance is often a loan stipulation. It’s quite another (and a glaring warning sign) for a loan officer to encourage you to take money just because it’s available. This type of loan isn’t in your best interests and could prevent you from obtaining needed home loans in the future.
Agrees to Unaffordable Home Loan Payments
Loud warning bells should go off if any lender tries to encourage you to accept home loan payment terms you can’t meet. This type of bad loan may get you what you want in the short term, but chances are you will lose your home by not being able to meet payment obligations.
They may tell you just to cut expenses and you’ll be fine, but this often is not a realistic option. These types of bad loan lenders know this. Don’t believe them if they say they will work with you. Believe what is in the contract. They will take your money when you manage to scrape payments together, then take your home as soon as you are unable to pay. Then a judgment will be made against you, where you will be liable for any unrecouped amount of the loan. That will negatively change your credit score, making it harder, if not impossible, to get a home loan in the future.
Be Wary of Extremely Low Rates
Consumers are often bombarded with television, print and mail ads for unbelievable interest and payment rates. Be sure to read the fine print on any of these loans before signing. Often the low rates or fixed interest is only for an introductory period. Payments and interest could go up astronomically after the introduction time is over or an unexpected balloon payment could be due. This type of bad loan tries to draw you in with promises, hoping you don’t notice the larger payments looming in the future.
Make sure you have hammered out and in writing all the details of your loan, for every month that you will be carrying the debt. Unexpected bigger payments can be unaffordable and cause you to lose your home.
A Home Loan Where You Don’t See Paperwork is a Bad One
If you don’t see all the paperwork to your home loan then walk away. This includes all the loan terms, as well as disclosures. Any lender who doesn’t let you see these and give you copies is not to be trusted.
Never sign a blank document and put your trust in the lender to fill it in later. Not only does it a warning of dishonesty, but they may also make mistakes.
Actions to Take Against a Bad Loan
Report any loan company or financial institution that encourages you to falsify documents or engaged in other fraudulent business practices to the servicer of the loan and an consumer advocacy group, such as Housing and Urban Development (HUD) or the Federal Trade Commission. Gather all loan documents and make a list of everyone who helped you get the loan.
If you have already signed the loan papers, be aware that you may be held accountable. Speak to an attorney with experience in loan fraud and be honest.
Federal Trade Commission, “Deceptive Mortgage Ads: What they say; What they leave out” FTC.gov
Jay MacDonald, “Watch Out for Bad-Loan Signals” Bankrate.com