11 Tips for Avoiding Predatory Lending

A person holding a chalkboard with the words "predatory lending" written on it.

These tips are courtesy of HUD (the US Dept. of Housing and Urban Development). Here are 11 tips on being a smart consumer when it comes to avoiding loan fraud.

Predatory lenders take many forms and prey on people at all stages of homeownership.

They cheat new homeowners by selling property for more than it’s worth using false appraisals. They coach borrowers to lie about their financial information in order to get a loan approval, and they knowingly lend borrowers more than they can afford to pay before selling the loan to a third party.

They target existing homeowners with cash-out refinance offers when the homeowners are vulnerable because of medical problems or unemployment. They also strip homeowners’ equity by getting them to refinance repeatedly even though it only benefits the predatory lender.

Finally, they show up when foreclosure is imminent and make false promises and high-pressure sales tactics to take advantage of those desperate to save their homes.

A hand holding a magnifying glass over the word avoid to stay away from predatory lending.

Tips for being a Smart Consumer

Credit.org is committed to helping people avoid becoming victims of predatory lenders. As a HUD-Approved housing counseling agency, we are proud to be a part of HUD’s “Keep Your Home, Know Your Loan” campaign, and we offer these 11 tips for being a smart consumer, courtesy of the U.S. Department of Housing and Urban Development:

  1. Before you buy a home, attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit counseling agencies.
  2. Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.
  3. Get information about the prices of other homes in the neighborhood. Don’t be fooled into paying too much.
  4. Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine whether you or the seller is going to be responsible for paying for the repairs. If you have to pay for the repairs, determine whether or not you can afford to make them.
  5. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
  6. Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your downpayment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.
  7. Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
  8. Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Insert “N/A” (i.e., not applicable) or cross through any blanks.
  9. Read everything carefully and ask questions. Do not sign anything that you don’t understand. Before signing, have your contract and loan agreement reviewed by an attorney skilled in real estate law, consult with a trusted real estate professional, or ask for help from a housing counselor with a HUD-approved agency. If you cannot afford an attorney, take your documents to the HUD-approved housing counseling agency near you to find out if they will review the documents or can refer you to an attorney who will help you for free or at low cost.
  10. Be suspicious when the cost of a home improvement goes up if you don’t accept the contractor’s financing.
  11. Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact, you are not (because you intend to rent the house to someone else or fix it up and resell it) violates federal law and is a crime.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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