Check for Signs of Predatory Lending
High Points and Fees: On average, banks charge 1% or less of the loan amount
for points and fees that go directly to them.
Yield Spread Premiums:
Be aware that brokers may be getting paid an extra bonus or yield spread premium for putting you in a higher cost loan than
the best you can qualify for.
Credit Insurance Poducts: Some lenders may try to sell you insurance policies along with your loan. Credit
insurance policies are usually more expensive than other kinds of insurance, and seldom make financial sense.
Prepayment Penalties: Many subprime loans include prepayment penalties, which
require you to pay thousands of dollars extra if you decide to refinance the loan with in the first several years of the loan,
or if you sell youy house during this period.
Balloon mortgages have the payments structured so that after making all the monthly payments for several years, the borrower
still have to make one big "balloon payment" that may be as much as the original loan amount. Most borrowers
should stay away form balloon mortgages.
Adjustable Rates: Not
all adjustable rates are bad, but adjustable rates can cause serious problems. Some adjustable rates can only go up
from the place they start, and never down. Othes are guaranteed to go up after some initial 'introductory' period.
If you have a fixed income and the rates are relatively low, it almost never makes sense to get an adjustable rate mortgage.
Do not count on lender promises that you can refinance before an interest rate changes.
Arbitration: Some lenders include mandatory arbitration clauses in their home loans. Signing one of these means
that you give up the right to sue in court if the lender does something you believe is illegal. There is no reason a
lender who is doing business fairly should want you to give up your legal rights.
or Incomplete Documents: Some lenders and brokers with "help" a borrower qualify for a loan they cannot
afford. Watch out for any offers that depend on saying you make more than you really do, or have more money in the bank,
or are expecting a gift. Don't sign paperwork that says your income or assets are different that what they really are.
Missing Costs: Find out whether payments for homeowners insurance ot tax
payments and taxes are, or are not included in your monthly payments. Usually these are included on 'A' loans,
but more often they are not in subprime loans. Of course, if they are not included in your payment, you will have to
pay them on top of what you pay every month.
Loans for more than
your home is worth: Beware of offers to loan you more than your home is worth. Once you owe more than your
home is worth, other responsible lenders will not be willing to refinance you, and you will be stuck with whatever rate you
were pushed into.
If you believe you are a victim of housing discrimination,
contact the Denver Metro Fair Housing Center at 720-279-4291 or DMFHC@dmfhc.org.