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Module 3
Preparing for Home Ownership
Buyers Beware
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Did You Know
  • When looking for loans, you need to be aware of unethical lenders.
  • You can be better prepared to identify predatory lenders by looking for certain commonly used tactics.
  • There are resources to help victims of predatory lending.
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What is Predatory Lending?

Signs of Abusive PracticesPredatory lending is when a lender takes advantage of a borrower, usually with one of the following abusive practices:
  • telling you that you only qualify for a higher interest rate loan, when you could qualify for lower rates

  • encouraging you to lie about your income and assets to obtain a loan amount that is greater than you can afford

  • asking you to sign blank contracts or loan documents

  • charging fees that are significantly higher than market or for nonexistent services

  • recommending higher-risk loans such as balloon, interest only, or option ARM and loans with costly pre-payment penalties without disclosing the risks of such products and providing information about other loan programs upon your request

  • requiring you to purchase unnecessary products like credit life insurance

  • encouraging you to obtain a refinance loan that has significant fees and provides no real benefit to you in terms of reduced rate or payments, cash-out, or debt consolidation

Knowledge is Your Best ProtectionBeing an informed homebuyer is your best protection against predatory lending. Predatory lenders use high pressure tactics and try to capitalize on a borrower’s lack of information or concerns they may have, which might include a history of credit problems. As a borrower, you should be as knowledgeable and informed as possible. Above all, whenever you suspect that a loan might be too good to be true, it probably is!

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