For most people, obtaining a mortgage is the largest financial obligation they’re ever going to take on. With so much money on the line, the mortgage industry is no stranger to deceptive practices and dishonest lenders looking to take advantage of unsuspecting homebuyers.
Finding a trustworthy lender is essential to protecting a buyer’s investment and securing their dream home. There are dozens of ways that unreputable—or even fake!—lenders use to defraud and steal from unsuspecting shoppers. When it comes to buying a home, it takes a village. Or, at least a reliable buyer’s agent like Ellen, to help clients connect with dependable, established lenders.
What Are Mortgage Scams?
Mortgage scams appear in various forms. What they all have in common is that they are designed to steal money from people who lack education about mortgages or weighty financial decisions.
Out-and-out scams are illegal, of course, but there are some practices used by dishonest lenders that fall into a legal gray area. Buyers unfamiliar with the home buying process may fall victim to predatory lending schemes in which lenders charge exorbitant fees or offer loans that they know the buyer cannot afford.
Ellen recently worked with a buyer who had an FHA preapproval letter from a lender. The home seeker was led to believe that the letter guaranteed a 30-year fixed mortgage with a 3.5% down payment. Upon closer inspection, Ellen found that the lender obligated the buyer to pay 10% down and an 8% interest rate, which her client would not have been able to afford! A less experienced agent would have missed the scam buried in the fine print, and the unsuspecting buyer would have navigated the buying process to the very end before realizing they could not afford the home after all—not to mention the money lost in the form of fees for inspections, appraisals, and more!
How To Avoid a Mortgage Scam
The best way to avoid a mortgage scam is to work with an experienced buyer’s agent. These professionals specialize in helping homebuyers navigate the intricacies of the loan process, ensuring they do not fall victim to fraud or ruinous lending practices.
1. Expert Knowledge
A reliable buyer’s agent is well-versed in all types of loan options, such as FHA, VA, and conventional loans. These professionals help clients understand all their options and recommend a trusted lender based on each individual’s financial situation. A buyer’s agent’s expertise with each stage of the process, from preapproval to closing, enables them to spot red flags, such as suspiciously low rates, irregular fees, “too good to be true” terms, and more.
2. Thorough Paperwork Analysis
Most mortgage scams are buried in fine print or hidden clauses. A good buyer’s agent can spot these tricks and carefully review every mortgage-related document to ensure that the terms agreed upon are accurately represented. If these scams are not caught before the papers are signed, a buyer can wind up in a mortgage agreement that leads to an extreme financial burden later.
3. Recommending a Trusted Lender
With so many lenders offering so many options, deals, and services, it can be a challenge to find the most appropriate source of financing. Working with a reputable buyer’s agent means engaging a pro who has worked directly with many lenders and can recommend the most reliable—and most appropriate—one. Ellen has long-established relationships with trustworthy lenders and can help clients find the one that best fits their needs, providing a smooth and secure mortgage process free of scams and fraud.
