A couple of years ago I had some buyers I was working with. They chose to use a mortgage broker that I was unfamiliar with. All seemed to go well until we got to the closing table. It appeared that the loan terms the buyers had been given earlier on had changed drastically. They had a loan that was a variable rate mortgage with an interest rate that could change every month. They did not know this. At that late date the buyers felt that their backs were to the wall and they decided to proceed with their purchase. They now tell me that they are very unhappy with the performance of their chosen mortgage broker. Especially since there was a prepayment penalty that would cost them dearly if they refinanced within the first three years of the loan.
A little later on I had a home listed for $129,000. The seller received an offer of $159,000!! Sounds great, right? But the buyer, who was a real estate agent, then wanted the seller to give him back nearly $50,000 for "down payment assistance and a remodelling allowance". The remodelling was to be done by a company owned by the buyer's broker. Of course, I had done a comparative market analysis and was sure that no honest appraiser would put such a high value on this home. I conferred with a licensed appraiser who confirmed this. After much discussion, the seller decided to reject this deal. Was something illegal going on? No way to know for sure. But sometimes things just smell bad, and it is better not to get involved.
I remembered these two cases when I was reading an article about mortgage fraud in the latest issue of Florida REALTOR, a magazine published by the Florida Association of REALTORs. I am very careful to avoid using copyrighted material without permission, but they listed some advice for buyers that they got from the FBI. They have said "Share this with your buyers". So I am assuming that it is okay to give it to you here. Here goes.
- If it sounds too good to be true - it probably is!
- Get referrals and check the professional licenses with state, county, or city regulatory agencies.
- Research local home prices before purchasing.
- Shop for a lender and compare costs. Beware of lenders who tell you they are your only chance of getting a loan.
- Beware of "No Money Down" loans, which is a gimmick used to entice consumers to purchase property that they likely can't afford or aren't qualified to purchase.
- Beware of the mortgage professional who falsely alters information to qualify the consumer for the loan.
- Don't let anyone convince you to borrow more money than you can afford to repay.
- Don't let anyone persuade you into making a false statement such as overstating your income, the source of your down payment, or the nature and length of your employment
- Carefully review all loan documents signed at closing or prior to closing for accuracy, completeness and omissions.
- Be aware of cost or loan terms at closing that aren't what you have agreed to.
Here are some of my own recommendations:
- Ask friends or family members to recommend lenders, or use a lender that you have done business with before.
- If you are considering a variable rate mortgage, ask the mortgage broker or lender what would happen in a "worst case scenario". That is to say, if the interest rate goes as high as it can over the life of the loan. Could you still afford to make the payments? Payments of $700/month may be easy to make. However, suppose they rose to $1,000+/month. Could you handle that? Keep in mind that your taxes and insurance will also probably rise. Can you handle the worst case payments without losing your home? Many people today cannot and are losing their investments.
- Your lender is supposed to give you a Good Faith Estimate within three days after receiving your loan application. (In truth, most can and will prepare an estimate for you before you apply). Make sure you get one and go over it with your mortgage broker. Question any fees that you do not feel are reasonable.
- Communicate with your lender frequently to make sure that nothing about your loan's terms has changed before arriving at the closing table. At that point buyers often feel that their hands are tied and they feel compelled to complete the purchase. Find out early if there are problems and take care of them long before the closing day.
- You may wish to have an attorney review your loan papers prior to closing if you do not understand them or something does not seem right to you.
- In Florida you can check out your mortgage brokers and lenders at the following sites. Just click on the name of the organization to go to their websites:
You can also read more about predatory lenders and how to avoid them at the Housing and Urban Development site. Just CLICK HERE to vist the HUD site.
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida