Predatory Lending

Predatory lending comes in many forms. The most common is for a lender or broker to pressure a borrower into refinancing when their is no benefit to the borrower.

Although there have been many instances of abusing standard lending practices, there are many checks and balances in place, to protect you against predatory lending. Some examples of predatory lending are Excessive Fees, Kickbacks to Brokers, Steering & Targeting, and Abusive Prepayment Penalties.

Predatory lending comes in many forms. Besides charging high interest rates and excessive fees, predatory lenders may pressure home buyers to take out mortgages that they cannot afford, pressure home buyers into high risk mortgages such as balloon loans, stripping a home onwer's equity by refinancing them with no benefits to the homeowners, and financing properties with inflated appraisal values so that the homeowners cannot possibly refinance themselves out of the predatory lenders' loans.

The best way to protect yourself against high fee's is to take a look at the Truth in Lending statement.

With most lenders you will have to prove there is a benefit to the borrower when refinancing their home. Either a better interest rate or paying off debts are 2 ways you can show the benefit.

Another common practice is for lenders to tell the borrower their score is lower than what it actually is resulting in a higher rate. Always make sure you get a copy of your credit scores within 3 business days from your lender.

One classic example of predatory lending is the 'bait and switch'. Basically the lender will lure you into their 'deal' by offering you low interest rates and fees. However, once you get to the closing table to sign for your new mortgage, you notice your interet rate and/or fees jumped up immensely. At that point, most people are so eager to get things over with that they will sign for the mortgage anyway.

It is important that if someone's deal sounds too good to be true, you get a second or third opinion. Chances are, there is something your loan officer isn't telling you, and another professional will be more than willing to tell you what it is.

Predatory lending is mostly dominated by direct lenders. This is one more reason to use a broker.

Predatory lending is when borrowers are subjected to unfair loan terms. Shopping numerous lenders for the best terms can help avoid this result.

In order to combat high fee predatory lending most lenders cap mortgage brokers fee's at a certain percentage of the loan amount. This will ensure that you can only be charged a maximum fair amount, this percentage varies from state to state but normally ranges from 4-5% of the loan amount.

Another aspect of Predatory lending is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms.

When to get qualified for a mortgage? - Should I get qualified for a mortgage before looking for a new house or find a house I like and then get qualified? You should absolutely get pre-qualified for a home loan before house hunting. By getting qualified first this will allow you to know how much house you can afford and how much of a mortgage you can qualify for. Also, most realtors will want to see a pre-approval before they start showing you houses, and the listing realtor will definitely want to see a pre-approval before yaccepting a bid on a house.

It's actually not a bad idea to start looking into being qualified as much as three months before you plan on purchasing a home. That way, if there are any credit issues that you were not aware of, there is a good chance you will have time to address them before the purchase.

Definitely begin the process as early as possible with your mortgage broker. This will give you a nice clear picture of what you can afford and what the process will be once you find your dream home. The sooner you begin with your mortgage broker, the sooner you can move through the loan process once you find your home!

There is usually no commitment on your part to get pre-qualified. In most cases, you don't even need to provide personal income documents. Of course, the more documents you furnish to your mortgage broker, the better and more accurate your pre-qualification will be. If you provide your mortgage broker with income and assets documentations, he/she can get you pre-approved from a bank, which is basically a loan approval, pending the information of the home and the appraisal.

It is a great idea to get pre approved before you start to look for a new home so you know how much you have to finance. With todays many 100% purchase programs a down payment is becoming a thing of the past for many people. But with no down payment the amount you can afford to finance will go down.

If you have an Adjustable Rate Mortgage(ARM) Loan, and the fixed period is will be expiring soon. You should look into becoming qualified for a new mortgage loan at about three months prior to the fixed period's expiration.

Giving yourself time needed to save up for a down payment, improving your scores, and moving balances on accounts is imperative to a successful home loan transaction.

If you are looking to do a cash-out refinance, remember that there is a 3 day right of recission. When you know that you will be needing the money by a certain date, then it would be a good idea to apply for the mortgage a month or two ahead of time. If you have bad credit, you should receive a copy of your credit report, in order to allow enough time to boost your scores. You should always allow a little bit of extra time, just in case there is any sort of problems during the loan process.

Many home shoppers will spend weeks shopping for a new home. For shoppers that start their search on the internet, most look through MLS listings online and do reasearch for 4 weeks before contacting a realtor. At that point, most of those sign a contract to buy a home within 2 weeks of contacting their realtor. Those contracts usually demand closing withing 2 to 4 weeks. This is when a lot of those home shoppers typically contact a mortgage professional, especially if their real estate agent is inexperienced.
If anything goes wrong, such as an error on a credit report or inability to find documantation about income or assets, there can be a lot of stress and panic for the home buyer. If they had started their mortgage search at the same time as their home search, they would have had 6 weeks to get everything together and completed. That also means less stress and a better chance of getting your home purchase closed on time.

In a fast moving market, being pre-approved for a loan can mean the difference in getting or loosing the home you want. If a seller has a choice between two competing offers they will typically accept the offer from a pre-approved borrower rather than taking the chance that borrower #2 may not get approved for a loan.

Whether you are buying a home or making plans to remodel your home, the first step is to get qualified for a mortgage to finance your new home or renovations. Qualifying for a mortgage is more convenient than ever with the ability to apply 24 hours a day over the internet.

When you get qualified for a mortgage, you can expect to be taken more seriously by Realtors and sellers when shopping for a new home.

A buyer should get pre-qualified to buy a house prior to looking for a home. A buyer can obtain a pre-qualification letter through a mortgage broker. The pre-qualification letter will indicate the loan amount and interest rate from the lender.

Don't be afraid to discuss your home-buying aspirations with your mortgage broker. We deal with many buyers on a regular basis, so there are a number of areas where we can offer sound advice. Additionally, if you have not yet begun working with a realtor, we can refer you to one we've worked with in the past, and whom we know you can trust.

When doing a Prequalify, or prequalification for a mortgage, A borrower will give their employment, income and asset information and the amount of current monthly debt.

What is a Pay option ARM - A Pay Option ARM is an adjustable rate mortgage that gives the borrower the option of selecting how much to pay each month based on different loan options. The borrower can choose any one of the different options included in their loan program.

Option arms or the pick your payment loan can adapt to fit your lifestyle. They offer flexible payment options and qualification standards. Investors like them for there low payments and cash flow potential.

Traditional home loan payments are the same each month for the term of the loan. With an Option ARM, you can choose from one of four payment choices each month -- which gives you the flexibility to change your mortgage payment as your needs change. You are only required to make the minimum payment on the loan each month.
Payment Options
1. Minimum Payment
2. Interest Only Payment
3. Fully Amortized 30 year payment
4. 15 Year Payment

Main Benefits of an Option Arm

To minimize your house payment to pay off other debt.
To control how much tax-deductible interest you pay monthly.
To maximize your buying power.
If your income tends to fluctuate.

How an Option Arm Works

The minimum payment can only increase or decrease by 7.5% per year. There would be an adjustment to your payment is rates have moved up or down. After 5-years an option arm will recasts which ensure your loan will be repaid within the given term or 30 years. This means your new payment would be calculated to pay the loan off in 25 years.
Since the minimum payment is so low you may not be paying off all of the interest each month. This is called deferred interest and will be added to your principal balance. Deferred interest can be tax deductible when you refinance or sell your home.
A lifetime interest rate cap limits how high your interest rate can reach.

The pay option ARM is a very effective tool for someone that is interested in investing in multiple properties. With this loan a savvy individual has the opportunity to own two houses and keep his mortgage payments very close to what their payment is with just one Principal and Interest loan

Pay Option ARMS have been around for many years but until the past four or five years have been primarily used by investors. The rising cost of homes and the lack of cash flow in the average American household have made these loans very popular with owner occupied homes recently.

Pay Option Adjustable Rate Mortgages are being offered by more and more banks. It is designed for home owners whose incomes are commission based, which can vary from month to month, and for those who have seasonal jobs, such as fishermen and vacation resorts, whose annual incomes are usually earned in 6 months.

The lower payments offered with a Pay Option ARM can be used to free up cash flow for use in other investments, such as starting your own business.

A Pay Option ARM may be a good choice for the self-employed or for people with erratic monthly cash flow.

The different options available for payments each month are a minimum payment, an interest only payment, a 30 year amortized payment and a 15 year amortized payment

The minimum pay option is the lowest possible payment and lets you keep more cash in your pocket each month. This payment typically changes annually and is recalculated based on the remaining principal balance of the loan, the remaining loan term, and the current interest rate. A payment cap is usually applied to ensure that they payment does not swing wildly from year to year. A typical payment cap is 7%. For example, if your minimum payment was $1,000 in year one, the most it would be in year two is $1,070 and the least it would be is $930.

Many new pay option minimum payment loans can be had with fixed payments for up to 5 years, which means that year after year, the payment will not increase by 7.5%, but will stay the same. So if you have a $500,000.00 loan with a minimum payment option of $1,264.00 and a five year fixed payment period, your payments will stay at $1264.00 for all 5 years.

A pay option adjustable rate mortgage (ARM) offers flexibility of payments. Be aware that if less than the interest accrued is paid your loan balance will increase. This low payment results in deferred interest or negative amortization.