Predatory lending tactics are unfair loan terms or other unfair terms that a lender forces on you because of your situation. It often happens to those that have bad credit, buyers that don’t have a large down payment, or the elderly. It also includes the practice of a lender convincing you that you need a loan that you don’t want or feel that you cannot afford.
Understanding what to look for in predatory lending tactics can help you prevent this from happening to you.
Hurrying You Through the Process
Sometimes lenders hide the full truth of the cost of the loan or the terms, if they aren’t beneficial to the borrower. The lack of full disclosure can be deceitful as you close on a loan that you didn’t understand its full risk or how it would affect you financially. You’ll often feel like the lender is forcing you to move quickly on the loan, barely giving you time to digest the information and decide if you want it. If you feel pressured by a lender back off and switch lenders.
Encouraging You to Tell False Information
Lying on a mortgage application is against the law. It could leave you with financial destruction as well as legal consequences to face. If your lender encourages you to lie about anything whether it’s your income, assets, dates of employment or anything else, don’t do it. They are just acting in their own interest because they want to close on the loan and make their profit.
Charging Excessive Loan Costs
It would be a mistake for you to take a loan at face value and assume it’s the best you qualify to get. Instead, shop around. Call different lenders and get quotes from them after sending them your documentation. Let them send you a Loan Estimate. Then compare the Loan Estimates to one another so that you can see if Lender A is overcharging you. If the costs are excessive, it’s a sign of predatory lending.
Changing Your Closing Costs
Once you have that Loan Estimate, keep it. You will want to compare it to the Closing Statement you get just before your closing. Pay close attention to the fees. Did the amount change? Are there suddenly new fees on the Closing Statement that weren’t there before? If so, you deserve to get answers. Ask the lender what changed and why the fees are higher now. If you aren’t comfortable with the loan, it’s okay to back out and start over with another lender.
Encouraging a Balloon Loan
Balloon loans have low interest rates initially, but then the remaining principal balance becomes due and payable after just a few years. Very few people can actually pay that balance in a few years. This leaves the lender in the position that they can refinance your loan and make more money on you. If your lender is encouraging a balloon loan, go elsewhere.
Promising You a Loan Even With Terrible Credit
If the lender makes it seem like it would be no problem to get you a loan even though you know you have bad credit, it’s a red flag. The lender will likely inflate the fees and maybe even lie on your loan application to get it to go through underwriting. If you know you have bad credit, you are better off fixing the credit and reapplying for a better loan down the road.
Luckily today predatory lending tactics are few and far between. Lenders have really cracked down on what they offer and they follow the mortgage industry laws to the letter. Lenders stand to face serious consequences if they give you a loan that you cannot afford.