Fraud is a growing crime in America. From mortgage fraud to identity theft, consumers are at a daily risk of becoming victims of fraud. Every year, misinformed homebuyers become victims of mortgage fraud. Most fraud schemes will target first-time homebuyers, minorities and seniors. Buying a home is a difficult transaction. In addition to the actual purchase, you have to find financing. This is a very emotional and stressful ordeal for a lot of borrowers. They are concerned with being rejected or not finding a good mortgage. The key to having any successful real estate transaction is knowledge. When you take the time to research how things are done, you will know what to look for. Here are a few tips to help you avoid mortgage fraud: 1. You have to shop around. Take the time to really compare lenders. Don't let yourself jump right into the first lender's arms. Look around and see what the rates and terms are with different lenders. Remember, if someone's rates are way off of everyone else's, you may need to watch out for them. Sometimes the lender sneaks in teaser rates that will adjust later or gives you a quote for a different type of mortgage product. 2. Know what type of borrower you are. Check out your finances for yourself. Make sure that the mortgage you are looking for is within your income limitations. Know how much debt you already have. Look up your credit report and know your score. Often, a lender will say, "Your score isn't that great so we'll have to give you a higher interest rate." Do you know what your score is? How can you be sure that your score isn't great? Do you just assume it isn't? In fact, many of us have better scores than we think we do. Take the time to check your credit score. Let the lender know you know your score. Sometimes, a lender will try to give you a higher interest rate than necessary. Know what category of borrower you fall into. It could save you a lot of money. 3. Never sign anything that has blanks or contains information that isn't true. Remember that everything you are signing becomes a legal fact. If you sign a document that doesn't have all the particulars filled in, then whatever the lender writes in will be forever held against you. If someone tells you that something isn't important or was accidentally put on there and will be corrected, don't sign. Don't sign anything that isn't exactly what you are agreeing to. If you don't understand something, don't sign it. I like to recommend that you spend the money to have an attorney present at closing. This attorney will review all of the paperwork with you before you sign it. It's a good idea for those of us who don't understand most legal talk. 4. Be certain that the numbers match. Double-check that the interest rates and loan amounts all add up at closing. Sometimes a lender will try to sneak a different rate in, hoping you won't notice. Make sure that everything is correct. 5. Never lie about anything. Because then you become the one involved in fraud, not the victim. Don't ever overstate your income, understate your expenses or give false information on a mortgage application. If you do, then you won't need to worry about a place to live, you could go to jail. 6. Watch out for high-risk loans. Nontraditional loans, such as balloon loans, interest only and loans with prepayment penalties need to be watched extra carefully. Make sure you understand that there are high risks for you with these loan products. Know exactly what can happen with the mortgage and the mortgage payment amount. Again, having a lawyer explain the details to you will be helpful. 7. Don't refinance when you don't really need to. If someone calls you from your mortgage company and offers you a refinance, you should probably turn it down. If you don't need to refinance, don't do it. It only strips your home of equity and costs you a lot of money in closing costs. Some shady lenders use this as a way to make money off of you by charging large fees and offering refinances every year, or more often. 8. Don't let a lender talk you into a larger mortgage. Only you really know what you can afford. Don't let any lender ever talk you into a larger loan. If you were to default on a mortgage you can't afford, you will lose your home. Stick with what you know you can afford. The key to avoiding fraud is in being educated, asking a lot of questions and understanding that the lender is not your friend. Be friendly, but be cautious. |
