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Be a
smart shopper! Here are just some examples of predatory
lending practices:
Structuring loans
people can't pay. This is when loan payments
are so high its impossible for the home owner to make the monthly
payment.
Offers to absorbing
un-secured debt. Example: You have
a student loan at 8%, credit cards at 22% and they convince you to
take out a second mortgage to consolidate all your debt at 15%.
You may think this is good because your credit cards were so
expensive at 22%, however, now your house is used as collateral!
100%+ Loan to Value
Programs Suppose you owe $75,000 on your house
and it's worth $80,000. The company convinces you to you
borrow $20,000 for repairs. Now you owe $95,000 and the house
is worth less. If you can't make your payments you can't sell the
house for enough to break even.
Changing the terms
at closing You come to close believing your term is a 10
year fixed and find out at closing the loan is a 15 year variable
rate.
High Rates
The prime rates at banks is around 8% but the rates at the
company might be 12% or higher, sometimes up to 25%!
High Points
Lender offers a "good" rate of 12% for only 5 points or 5% extra
at close.
Padded Closing Costs
Predatory lenders can and do charge more for closing costs than
normal.
In summary, predatory lenders thrive on a
consumer's immediate need for cash combined with a lack of
familiarity with standard credit products and practices. To
learn more about being a savvy consumer, register for our
Homebuyer Classes offered every
month.
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