|Seven Warning Signs Of a Bad Loan|
by Lew Sichelman
Chances are you know the seven warning signs of cancer; many people do. But do you know the seven red flags that a lender is taking advantage of you? Or that the loan you are considering is not in your best interests?
If not, the Federal Trade Commission warns in an updated alert, you could end up losing your house and all the equity you've built up in it over the years.
"Not all loans or lenders are created equal," the consumer watchdog agency cautions in the revised bulletin. "Some unscrupulous lenders may offer loans to elderly or low-income homeowners and those with credit problems, promising that the loan will be based on the equity of the home, rather than the homeowner's ability to repay it."
Basically, if a loan sounds too good to be true, it probably isn't. But beyond that, there are certain tell-tale signs that something is amiss and you should slow down and proceed with extreme caution.
Avoid any lender who:
Tells or requires you to falsify information on your application. There is no such thing as a "little white lie" when borrowing money. If you don't tell the truth, you could go to jail or be fined. But even if you are not prosecuted, you could be forced to pay the loan in full right away. Or you could be getting in way over your head and find yourself on the street.
Pressures you into borrowing more money than you need. The only reason a lender wants you borrow more than necessary is to increase his commission. But you'll probably pay more in interest on the extra dough than you'd earn in interest by stashing it away in a savings account. So stick to what you need and ask for no more.
Pushes you into accepting monthly payments you can't afford. Figure out whether you have enough coming in to cover all your monthly bills, including a new or larger mortgage. And don't forget to have a little cushion for emergencies. If your outflow is more than your inflow, you will find yourself in trouble rather quickly. Only Uncle Sam can get away with deficits.
Fails to provide you with the required loan disclosures, or tells you don't need to read them. By law, lenders have to tell you the APR, or annual percentage rate, plus provide an itemized list of closing costs within three days after you apply.
The APR is a comparsion shopping tool that includes not just the interest rate but also points, broker fees and certain other credit charges. The list of closing fees, known as a good faith estimate, will cover these charges as well as everything else you'll be asked to pay at settlement.
If yours is considered a "high-rate, high-fee" loan, the Home Ownership and Equity Protection Act, gives you additional rights and protections. For example, if total fees and points exceed a certain amount for 2003, the figure is $488 or 8 percent of the total loan amount you must get some disclosure three business days before closing.
All of this is valuable information, so take as long as necessary to read it. And if you don't understand it, consult with someone you trust for an explanation. That could be an attorney, financial advisor or your local credit counseling agency.
Promises one thing and delivers another. If you are presented one set of terms when you apply for the loan and a completely different set at closing, your antenna should wiggle and you should demand an explanation. Actually, even if your lender explains what's going on, it's probably a good idea to step back and take another, harder look at what he's asking you to agree to. And be prepared to walk away and take your business elsewhere.
Tells you it is okay to sign blank forms. It is never okay to sign a blank form. Period. End of story. So don't allow the lender to fill in the blanks later. If there is a blank, cross it out and initial your mark.
Says you can't have copies of the papers you are signing. Or won't give you copies of the documents you'll be asked to sign.
Lenders may not give you the actual filled-in papers in advance, but they should be willing to give you blank documents that have not yet been filled in so you can take them home and review them or show them to a trusted advisor. If they won't, wonder if they have something to hide.
And if the lender won't give you copies of what you've signed at closing, cancel the deal right then and there. These papers contain important information about your rights and obligations. If your lender doesn't want you to have a set, something's terribly wrong.Feel free to contact me with any questions.