Predatory lending is a term used to capture a whole slew of techniques used by lenders to ensure the most beneficial terms for the financing institution at the expense of borrowers. While there may be a preconceived notion of these practices affecting subsections of the population, predatory lending is something for everyone to watch out for when buying or selling at home.
Many of these types of predatory situations can be resolved by being vigilant and consulting a trusted realtor or related party that has a demonstrated consistent and reliable approach to the home-buying process. There are a few steps you can take to ensure that your real estate transaction goes smoothly and the Realtor/lender combination you choose is out for your best interests.
Research Your Realtor
Always check references and interview multiple Realtors when you are shopping for a home. Well-established and popular companies have often worked hard for that reputation, serving customers in real estate transactions fairly to ensure repeat business and positive word-of-mouth. That certainly does not mean that a Realtor is out to get you if he or she doesn’t have a long history and a laundry list of references, but it does mean that doing your homework on a particular Realtor can pay off in the long run for your real estate transaction.
Remember You Have A Real Estate Choice
One way to guard against predatory lending is to keep your options open. There is a multitude of organizations in the area that are interested in lending you money, so you should never feel cornered or forced into accepting a particular lending package. Credit has never been more freely available than it is in today’s economy and that progress has spawned lending organizations of varying quality. Once again, doing your homework can pay off and well-established, respected lending agencies are more apt to have your interests at heart.
Know Your Borrowing Limits
One red flag for predatory lending is having a lender push you to borrow more than you know you can pay back, promising relief or mysterious benefits down the road. Armed with your pertinent financial information like your salary, savings levels, and credit standing, you should be able to estimate the kind of payments you can afford and the total loan you can live with. Never let a lender steer you any higher than what you are comfortable borrowing.
Don’t Fudge Numbers
Predatory lenders have been known in the past to ask borrowers to artificially inflate their salary or savings numbers in order to get approved for larger loans than they really should be approved for. This practice may sound great in getting a bigger house than you accepted possible, but that comes at a steep price in the form of mortgage payments that you might not be able to afford. Reporting accurate information, puts another check in place to ensure that the real estate loan you receive is one that you can handle.
Keep Your Real Estate Loan Simple
While there are instances that adding separate costs to your home loan amount is beneficial, it can also be a warning sign of predatory lending. Should a lender what you to fold a multitude of other costs into the real estate transaction you’re trying to accomplish, it could be because they want to pull in a bigger loan amount for their company, no matter what it’s being used to cover. Consult your Realtor and shop around to see if combining other items into your loan is really the best approach to your real estate needs.
Much of the problems surrounding predatory lending can be solved by simply shopping your lending situation around to a variety of different lenders. By doing so, you minimize the chance of someone trying to offer you an exorbitant lending rate or using hidden fees and transaction costs that are not standard in the industry. By proactively protecting yourself in the home-buying process, you can make sure that your real estate transaction goes smoothly and nets you with a fair loan for your personal financial situation.