As lenders have tightened restrictions for securing mortgage loans, homebuyers have been forced to expand their options to include non-traditional funding sources. Realizing this, several scams have emerged that target desperate borrowers. Failure to avoid these scams could result in a home being foreclosed, fines being levied, or criminal charges.
Before you head out in search of your next home loan, protect yourself by learning as much as possible about the scams currently circulating. By reading up on the following modern-day loan scams, you’ll be prepared to see the signs of a potential scam before it’s too late.
The Fraudulent Application
Most homebuyers know that falsifying information on a loan application is illegal, but what if the borrower isn’t even aware of it? While this won’t likely happen in this strict lending environment, there have been instances where real estate brokers were so eager to sell, they’ve pushed the loan through using false statements of income.
As long as the homeowner saves his documentation, he probably won’t be held responsible for the falsification. However, the income requirements are in place for a reason. By falsifying the borrower’s income, the loan may have been written with terms that are well above the homeowner’s ability to pay, which could result in a foreclosure down the line. Online calculators can help a home shopper understand the minimum and maximum home he can afford based on his family debt-to-income ratio.
The Loan Modification Scam
For homeowners nearing foreclosure, relief can be found in the form of a loan modification offer. Shady lenders promise these homeowners the world in return for an up-front fee. What homeowners may not realize, however, is that this practice is illegal under the Federal Trade Commission’s Mortgage Assistance Relief Services (MARS) Rule. Attorneys can charge fees as long as meet FTC requirements, but other scams have individuals posing as an attorney in order to charge fees.
Another loan modification involves a relief organization shifting the homeowner’s payments to them, rather than the original lender. Homeowners erroneously believe this money goes toward their monthly mortgage when in actuality, the scammer has been pocketing the money. Experts advise homeowners to always send mortgage payments to the lender.
The Rent-to-Buy Scam
Another scam that targets desperate homeowners is the rent-to-buy scam. In this instance, a lender offers to let the homeowner stay in his home in return for handing the house over. The homeowner then becomes a renter in the lender’s home. The scammer generally misleads the homeowner into believing that in time, he’ll be able to buy the home back and resume mortgage payments. However, by the time the original homeowner can take the loan back, he often finds the terms have been set at an unreachable cost at his income level.
The Federal Trade Commission maintains information on scams in order to help consumers. By being aware that these scams exist and watching for them, borrowers can avoid a disastrous mortgage scam. Mortgage shoppers should also visit several lenders before choosing a lender for a new home purchase or mortgage refinance to make sure they’re getting the best deal possible.
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