The best defense against predatory lending is education. Understanding
homeowner rights and the homebuying process is an important first
step in protecting families and their homes.
We have included some information on common borrowing mistakes
as well as links to more information on the homebuying process.
More information can be found at:
the local library
nonprofit
housing & homeownership organizations
nonprofit credit counseling
agencies
"Through
consumer education, Freddie Mac is providing borrowers with a renewed sense of
hope and opportunity for the American dream of homeownership"
Senator Paul S. Sarbanes
(D-MD)
Avoiding Borrowing Pitfalls
Say NO to "easy money." Borrowers should
beware if someone claims "credit problems won't affect the interest
rate." If a solicitation for a loan sounds too good to be true,
it probably is. If a solicitation is really interesting, get it in writing!
Shop around. Borrowers should talk to several lenders
to find the best loan for which they qualify. A loan product or lending
practice may not seem predatory until compared with a similar loan
product offered by other lenders.
Understand the loan terms. Borrowers should compare
loan terms from different lenders. Understand the best loan terms
available in the marketplace and compare the APR (annual percentage
rate) of loans from different lenders. The APR takes into account
both the interest rate and the points and fees of the loan. A nonprofit
housing counselor or a lawyer can review the information with a borrower.
Find out about prepayment penalties. Borrowers should
know if the loan offered to them has a prepayment penalty. Prepayment
penalty should be a choice, not a requirement.
Make sure documents are correct. Be cautious of
someone who offers to falsify a borrower's income information to qualify
for a loan. Borrowers should never falsify information or sign documents
that they know to be false.
Make sure documents are complete. A borrower should
not sign documents that have incorrect dates or blank fields. Be wary
of promises that a lender will "fix it later" or "fill
it in later."
Ask about additional fees. Borrowers should question
any items they didn't ask for. Borrowers should also beware if they
are told that single premium credit insurance is required get a loan,
or that purchasing it will help loan approval. Review every fee and
compare different lenders' fees to ensure the most competitive loan
terms.
Understand the total package. Ask for written estimates
that include all points and fees. The situation may not seem abusive
until when everyone gets to the closing table. If any fees or charges
differ from what was previously disclosed, delay the closing until
all terms of the loan are clearly understood.
Work with credit counselors. A borrower should get
all the facts before deciding to combine credit card or other debts
into a home loan. Beware of scam credit counseling/ credit consolidation
agencies – unfortunately, not all credit counseling agencies
are acting in your best interests. Talk to a community-based consumer
credit counseling agency or housing counselor before signing the loan
documents.
Protect home equity. If borrowers are taking equity
out of their property, they should take out the minimum amount needed.
The equity in a home is a source of wealth, which builds up slowly
over time.
If you’re not sure, don't sign! Get advice
first! Talk to a community-based consumer credit counseling agency or
housing counselor.
