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7 Warning Signs of a Bad Loan

September 2nd, 2014 3:17 AM by Jackie A. Graves

7 Warning Signs of a Bad Loan photo

The old joke: the greatest trick the devil ever pulled was convincing the world he didn’t exist.

The sad truth: the greatest trick a lender could ever pull is pretending your best interests are at heart while laughing all the way to the bank after giving you a bad loan.

When you go to shop for a loan, look for these bad loan warning signs—and be prepared to run—not walk—away from the table, from any lender who does the following dubious actions.

1. Says It’s Okay to Fudge Some Numbers

If your lender is trying to get you to lie about your income in order to get a bigger loan, stop dealing with that lender immediately.

There is no such thing as a little white lie when borrowing money: it’s mortgage fraud, and it could get you slapped with steep penalties or even jailed.

2. Pressures You into a Bigger Loan

Beware of any lender who pressures you into borrowing more money than you need.

You will likely pay more in interest on the extra cash than you’d earn in interest by stashing it away in a savings account.

Stick to what you need, no more.

3. Doesn’t Consider Your Monthly Income

Figure out whether you have enough coming in to cover all your monthly bills, a new mortgage and a savings account for emergencies.

Know that number and stick to it—if a lender starts pressuring you into a bad loan with monthly payments you know you can’t afford, get out.

If your outflow is more than your inflow, you will find yourself in trouble rather quickly.

4. Doesn’t Disclose Documents

Beware of any lender who 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 annual percentage rate (APR) plus provide a good faith estimate (GFE)—an itemized list of estimated closing costs—within three days after you apply.

The APR includes not just the interest rate, but also points, broker fees and certain other credit charges. The GFE covers these charges as well as everything else you’ll be asked to pay at settlement.

You should use these documents to loan shop.

5. Promises One Thing, Delivers Another

If you are presented one set of terms when you apply for the loan and a different set at closing, you should demand an explanation.

It could be a bait-and-switch scam, where the lender is trying to pressure you into signing these new documents with worse rates or unfavorable terms.

Be prepared to walk away and take your business elsewhere.

6. Says It’s Okay to Leave or Sign Blank Forms

It is never okay to sign a blank form, period. If you leave blanks, a scamming lender could fill in extra terms and conditions that could alter your loan—and not for the better.

Worst-case scenarios could have lenders who write in clauses surrendering the title of your home.

Don’t let anyone fill in the blanks later. If there is a blank, cross it out and initial your mark.

7. Doesn’t Provide Copies

Lenders may not give you the actual filled-in papers in advance, but they should give you blank documents so you can take them home to review or show them to a trusted advisor.

If they won’t, maybe they have something to hide.

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, and you need them.

Always Ask Questions or You Could Get a Bad Loan

When there’s something you don’t understand while shopping for a mortgage, consult with someone you trust for an explanation.

That could be an attorney, financial advisor or your local credit counseling agency.

By: Craig Donofrio | Updated from an earlier version by Lew Sichelman.

To view the original article click here

Posted in:General
Posted by Jackie A. Graves on September 2nd, 2014 3:17 AM


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