Question:How can I avoid predatory lending when I amlooking for a loan to finance my new home purchase?

Predatorylendingreferstothepractice oftakingadvantageofborrowersthrough unfair and abusive mortgage lendingpractices.Homebuyers and others who may beinexperienced with getting a home loan or are likelytobeinfluencedbyahigh-pressuresales approach, may pay higher fees and interest rates than their credit history warrants.Since not all loans are appropriate for everybuyer,itis important tobeawareofthewarningsignsthatyou may bea candidate for a predatory loan.

A poor credit history can pose a challengewhenseekingaloan.Theloweryour credit score, the more risk is involved in giving you a loan.Fees and loan rates may behigher for higher risk borrowers.

If you are offered a loan with the promise up front that you are “guaranteed to beapproved,”beverycautious.Alllenders must review your information before approvinga loan.If you are offered a loan with nodown payment, be sure you understand the termsoftheloanincluding whether therewillbea first loanandasecondloanwithdifferentratesandifyouwillberequiredto pay for mortgage insurance?

Adjustable rate mortgages are usuallynotappropriateifyouhaveahistoryoftrouble keeping up with loan payments.A low introductory rate sounds great but, whenthe rate goes up, you may find it difficult to meet the new paymentamount on a monthlybasis. Always ask to view the good faith estimate andtruthinlending document whenyou apply, but mostimportantlymake sure you read all the closing documents to ensureyou understand how the rate will adjust and when.

Unjustifiedhighinterestratesand unnecessary orexcessivefeescouldbesignsofa predatory loan. Be sure the fees you arebeingquotedonyourloanaretypicalofthe local market and other buyers like yourself.On many loans the fees are negotiableandshouldbecompletelydisclosedtoyou before you sign any loan papers.

If the sales approach of the lender seemsaggressivetoyou,takethatasasigntobecautious.Besuspiciousofasalespitchthattellsyouthatthisloanisallyou may bequalifiedtoreceive.Youshouldtake responsibility for your decision.Take a copy ofyourcreditreportandcredit score, interviewtwoorthree lenders andfindtheloanandterms that are right for you.

Here are someimportant questions to ask when shopping for a loan.

  • What isthebest interest rate available inour market today?DoIqualify?
  • Is this a fixed rate loan or an adjustable rate loan?If adjustable, how often does itadjustandatwhat increased rate?
  • Whatisthelengthoftheloan?
  • What are thetotal loan fees?

You should check on the qualifications of your lender. The Better Business Bureau, local housing advocacygroups and government agencies that oversee themortgageindustry,aregoodsourcesof information.Trustisthekeyto working withalender.Ask your REALTOR® for suggestionsonhowtofindthe most qualifiedlendersfor your situation.

Getting educated about the loan processand your options is the best protection against falling victimto a predatory lender.If you believe that you have been taken advantage of, contact the Federal Trade Commission (www.ftc.gov) or your local DistrictAttorney’s office for advice. You canalso calltheColoradoMortgageLendersAssociation, at 800-611-4832 x4 to ask questions, inquireaboutalender,orfileacomplaint.

This article was contributed bytheColorado Association of REALTORS®.

Special thanks totheNational Association of REALTORS®, the Colorado MortgageLenders Association and the Colorado DivisionofHousingfor information includedinthis article.