How to spot a predatory loan when buying your first home

On Behalf of | Jul 6, 2020 | Real Estate

Boston’s rich history, myriad career and education opportunities and proximity to the coast have made it an attractive destination for first-time homebuyers for decades. Its popularity and accessibility as one of the northeast’s hub cities have increased the value of homes both in Boston and the surrounding areas.

As you consider making the Boston area the site of your first home purchase, you are probably considering obtaining a loan to reduce some of the immediate financial burden. Your home is one of the most significant financial investments you will make in your lifetime. Protect your investment, your financial health and yourself by avoiding a predatory loan when buying your first house.

Red flags during the homebuying process

When shopping for home loans, remember that you enjoy certain protections as a consumer. The U.S. Department of Housing and Urban Development and non-profit housing education organizations provide resources to help homebuyers like you ward off unsavory lending practices.

The lender creates a false sense of exclusivity or urgency. You may encounter a lender who offers you a “limited-time deal” or claims that they are the only lender in the area who will accept your credit score. If a lender tries to rush you into signing a loan agreement before you have had the chance to shop around, they may be relying on your inexperience. Review your options with several lenders before making your final decision.

On a similar note, any lender that offers you exclusive deals on home improvement financing as long as you accept their referral to another lender is likely not working in your best interests.

The property costs more than your neighbors’ property but without reasonable cause. Homes in the same neighborhood should all have reasonably similar costs, unless there are significant differences in size, amenities or in-home features. If a lender claims that your house costs much more than the other houses on the street, do not be afraid to ask for justification.

The closing cost does not match the agreed-upon cost. At closing, you should have a very clear understanding of what your new home will cost. Last-minute increases or hidden costs at closing can be a sign that unexpected changes to your agreement with the lender are ahead.

The lender asks you to sign blank documents or documents with false information. Signing a blank loan agreement is similar to signing a blank check. The lender can fill it in with whatever terms they desire because they already have your pledge to fulfill the agreement. Review loan agreements thoroughly and get help from an experienced real estate attorney if necessary.

The lender assures loan fraud protection under Federal Housing Authority insurance. Federal Housing Authority insurance does not protect you against loan fraud. It also does not protect you against property defects. Misrepresenting your consumer protections can be a significant red flag during the homebuying process.

The lender offers refinancing as a cure-all for financial problems. Refinancing is a useful tool for property owners, but it is far from the financial panacea a predatory lender claims. Be wary of any loan agreement or refinancing that promises to solve low credit scores.

Your peace of mind is worth the effort

Purchasing your first home is an exciting new chapter in your life. Do your due diligence before signing any loan agreements to avoid falling victim to a predatory lender. Utilize federal and non-profit housing resources, and work with a knowledgeable real estate professional to make your property-buying decisions confidently.