While most lenders are honest, there are some who can be described as predatory lenders. Some of the predatory practices include charging excessive fees, loaning more than the property is worth, charging high interest rates and hiding and/or falsifying important information. These lenders prey on the most vulnerable markets, low-income and elderly households. Even the best educated consumers can be confused with the loan application process. Unfortunately, when it comes to predatory lending, what you don’t know can hurt you! The consequences of getting into a predatory loan can be devastating for a household. Many have found themselves over their head in debt, in loans they can’t afford.
Neighborhood Housing Partnership (NHP) is committed to helping consumers avoid the pitfalls of predatory lending. We know that consumer education can help protect your most important investment—your home. Before you apply for a loan contact NHP for more information or, better yet, register for our homebuyer education class and arm yourself with the tools you need to find the best loan for your situation.
How to Avoid a Predatory Loan
- Shop Around
Don’t take the first deal that’s offered to you. Compare rates and fees with other lenders. A good place to start is with a lender with whom you already have a relationship.
- Be an Educated Consumer
Know what fees and interest rates are reasonable. Take the NHP homebuyer education course to learn the ins and outs of homebuying.
- Avoid Balloon Payments
Balloon payments have large payments due at the end of the loan.
- Avoid Prepayment Penalties
Make sure that if you want to pay the loan off early, you will not be penalized.
- Know Your Rights
For example; you have three days from the closing to change your mind about the loan. This is called the right to rescind.
- Read Before You Sign
Never sign a blank form or a form that has sections blacked out. If you don’t understand something, make sure you get a thorough explanation with which you’re comfortable.
- Don’t be Pressured or Bullied
If you feel that your lender is pressuring you, don’t hesitate to say no and walk away.
- Make Sure the Appraisal is Reasonable
Predatory lenders will sometimes loan more than the house is worth. If for some reason, you had to sell the home, you could end up owing more than you could sell it for.
- Build up Your Credit
No reputable lender will make a loan to someone who has a very poor credit history. Commit to clean up your credit—contact NHP to talk about credit counseling.
- Avoid Flipping
Some predators will contact you shortly after you obtain a loan and offer to refinance it for you in a process called flipping. Many are attracted by an opportunity to consolidate their monthly bills into one payment. What they might not know is that they may be refinancing high costs and fees along with those bills.