Show Home Loan Scammers the Door

Owning a home is more than just having a place to live. A home can provide a path to a better quality of life and greater financial security. It is often the single biggest purchase a person will make. So, picking the right lender for your home purchase is important. If you’re like many people, you need an affordable home loan from a lender you can trust.

Fortunately, First United is here to assist with home purchases and refinances. But there are also home loan scammers targeting homebuyers and homeowners across the country. “With the number of online solicitations or mail, it’s hard to decipher which ones you need to pay attention to and which ones you can trash,” says First United Mortgage Loan Consultant Cristina Calk. “We are always happy to review these items with you and advise.”

Along with having a trusted advisor, consumers should arm themselves with knowledge. In this article, we’ll look at common forms of home loan scams, who’s most at risk, and ways to protect yourself by watching out for red flags.

Common Scams

There are a few popular ways that scammers try to take advantage of borrowers. Knowing their tactics is the first step in protecting yourself.

• Bait-and-Switch. Scammers will entice you with amazingly low rates and other attractive loan terms. Once you sign on, you’re told you no longer qualify for those terms – with no legitimate explanation for why – or that you must pay many phony fees. These scams can be hard to prove because rate changes can sometimes happen with a loan from legitimate sources.  

• Collateral Scam. In a collateral scam, a fraudster will try to talk you into using your home as collateral for a loan you can’t afford. A scammer might misrepresent the kind of loan they’re offering or they might pressure you into borrowing more than you need. They’ll offer a loan based on how much equity you have in your home – but not your ability to pay back the loan. First United's mortgage calculator can help you do some initial estimates on payments and affordability.

• Home Improvement Scam. In a home improvement loan scam, a crooked contractor will tell you they can arrange financing through a “friend” or a lender they know. The contractor begins the work and then asks you to sign some papers – usually without giving you time to review them. If you’re not careful, you can end up with a high-interest home equity loan you didn’t want. To make matters worse, because the money often goes directly to the contractor, they have little incentive to do a good job. The contractor might do shoddy work or skip town with your money.

Frequent Targets

Scammers know who to target. They know when someone needs financing and who is least likely to know their financing options. First-time homebuyers are often inexperienced in real estate and vulnerable to being taken advantage of. Also, people facing financial hardship can be on a scammer’s radar screen. Whether it’s through a job loss, bills stacking up, or a low credit score, scammers will target this group with solutions that are “too good to be true.” This need for financing can often go hand-in-hand with a need for home repairs or renovations. Scammers know who to target. They know when someone needs financing and who is least likely to know their financing options. First-time homebuyers are often inexperienced in real estate and vulnerable to being taken advantage of. Also, people facing financial hardship can be on a scammer’s radar screen. Whether it’s through a job loss, bills stacking up, or a low credit score, scammers will target this group with solutions that are “too good to be true.” This need for financing can often go hand-in-hand with a need for home repairs or renovations.

Red Flags

Licensed and reputable lenders are required to follow regulations and provide documentation that you can review so you know what you’re agreeing to. You’ll know you’re working with a solid lender when they are transparent about rates, fees, and repayment schedules. Now that we know what a good lender looks like, here are a few red flags that will help you spot a scammer:

• They ask you to lie on a loan application or any other document, or they use high-pressure tactics to urge you to borrow more than you need or can afford to repay. A reputable lender would never ask you to do this.
• The scammer makes big promises before they’ve even assessed your finances. Like claiming that having a lower credit score won’t affect your ability to get a loan or the interest rate you’ll pay.
• If you own your home, the scammer demands that you sign over the deed.
• They give you vague information about rates, fees, and terms. Or they won’t give you required loan disclosures, such as your loan estimate and closing disclosure form, or provide copies of documents you’ve signed.

Protecting Yourself

While all this can seem scary, there are some simple ways you can stay safe from home loan scams. As well, some people can help you stay safe.

• Know your credit score and understand how it will affect your home financing. A First United banker or loan officer can help you get a copy of your credit report and help you review it.
• Before signing loan documents, ask for a breakdown of fees. Licensed lenders are required to provide an itemization of all fees. With this in hand, you’ll be able to understand the total costs that will affect the actual price of the loan. Carefully review these documents and don’t sign anything until you understand all the terms.
• If you’re planning some renovations, consider only licensed and insured contractors, and contact your financial institution about financing.
• While it goes without saying, never borrow funds you know you can’t afford to repay and never transfer your deed to anyone without consulting an attorney.

Another way to help protect yourself is to work with a lender you know and trust. Sit down and talk with your lender about your plans and financial needs. Then, your lender can provide information to help you decide on the best options.

Your neighborhood First United community bank can get you in touch with a local, licensed First United Mortgage loan officer who can help answer questions and provide information to empower you to make the best decision. Visit our locations page to find the bank nearest you.