The home buying process comes with many unknowns, uncertainties, and expenses. We can all agree that buying a home is stressful enough as it is. Between finding your dream property, saving up for the expenses, and trying to get approved for the best mortgage rate possible, the one comfort you want to have is being able to trust your mortgage lender.
While most lenders want to help you make safe financial decisions, unfortunately, some just want to make a quick buck off you. They design their loans to benefit them and to end up costing you more in fees and interest long term. These types of loans can trap you in an endless cycle of debt and financial turmoil. This is why you must protect yourself from predatory lenders and their shady practices. Here at Wilkes Mortgage Group, we want to make sure this doesn't happen to you. With over a decade of industry experience, we know a thing or two about questionable mortgage loans. Protect yourself and be sure to look out for these red flags when choosing a mortgage lender.
#1: Offering a *much* lower interest rate than other lenders and than the APR.
Does the rate a lender is offering look too good to be true? Well, maybe that's because it is. It’s normal for different lenders to offer varying rates, but if one lender offers up a rate that is significantly lower than you’ve seen from competitors, it might come with a catch. This predatory practice hooks you with the initial low rate but then traps you with upfront costs and higher than average closing costs. If you have three offers ranging from 2.75% to 2.85% and a fourth lender comes in with 2.3%, dig deeper to find out why it's so much lower. Remember that a low rate might look appealing, but you have to consider the long-term cost.
Sometimes to snag an extremely discounted rate, you'll have to pay for discount points. You should also watch out for being charged points or an application fee to just apply. Keep an eye out for whether points are required and be sure to see what rates you can get without points. This will give you a more accurate sense of the difference between the lenders you are considering.
#2: No credit check.
Always look out for loans being offered without a credit check. Take a step back and remember that banks and loan officers need to know where you stand financially and how you have managed debt in the past to loan you money, it's common practice. Your credit helps determine if you qualify for a loan and establishes your interest rate. While no credit check loans may sound appealing if you don't have the best credit, they can be dangerous. For one, they tend to be extremely expensive and offer sky-high rates. In turn, these loans can trap you in debt and hold you back further from building up credit for the future. There are many beneficial loans designed for people with low or no credit because the bank always wants to know where you stand first. If a lender offers you a loan with no credit check, I would recommend just walking away.
#3: Being rushed into making a decision.
You never want to be rushed into anything, especially something as big as buying a home. Most loan officers will help you read through and understand each clause of the loan. Both parties need to make sure there is a full understanding. Many lenders will encourage you to take your time and read over the paperwork on your own for you to fully understand the terms and financial obligations you are signing to, along with any financial fees or potential penalties as well. A good lender will work with you to explain things you may not understand or may have second thoughts about. If you find yourself being rushed to sign paperwork without reading it thoroughly, this may be an indication there are clauses they don’t want you to see.
#4: Unnecessary paperwork and blank fields.
When signing a contract, watch out for blank fields. This gives the shady lender a chance to fill in details after you sign that will change the terms of the loan, while still being effectively legally binding. You also want to keep an eye out for "additional paperwork" and make sure you fully understand and read it before signing.
When it comes to the paperwork you need to provide, this may include tax returns, pay stubs, W-2s or other proof of income, bank statements and other assets, credit history, photo ID, and renting history. If you are being asked to provide strange documentation or authorization, this may be an indication of shady practice. For example, if you are being asked for access to your bank account for direct withdrawals, this is a clear red flag. Lenders can offer direct withdrawal if that is convenient for the borrower. But if a lender requires your bank account or a backdated check for the full amount, they might be preparing to pull money from your account whether you have it or not.
This is an industry where people skills and connection are extremely important. You want to work with a lender you can build an actual relationship with. Just like any other relationship in your life, it's important to have compatible personalities. You should have aligned values, an understanding of each other's goals, good communication, and mutual trust. After all, this is one of the biggest investments you will ever make, and it should be treated as such. When choosing your mortgage lender, it is important to build a relationship with your advisor, feel comfortable, and have a plan that not only suits you now but for the next 10 years down the road as well.
#6: Promises of a quick closing.
It normally takes mortgage lenders at least 30 days to close on a home loan because of the different steps that need to be taken to finalize the process. Among these steps are underwriting, where your financial information is verified, and a home appraisal, where the value of the home is determined to ensure that it’s high enough to cover your mortgage balance. Because of the intensiveness of this process, it's extremely rare for a mortgage to close in under 30 days. Most of the time, it can easily take 45 to 60 days for a mortgage to close. If a lender claims that they can close your loan within 14 days or something similarly unrealistic, then you have every reason to be suspicious.
At the end of the day, the best way to protect yourself from harmful lending is to find a trustworthy mortgage lender. Buying a home is a big deal and a very large purchase, so take your time finding the right mortgage lender and beware of the red flags.
Here at Wilkes Mortgage Group, our clients are more than just a number. We strive to open up the doors to have a lifelong relationship with you and your family. We want to put families in homes and will set up a plan for success. We have a mutual desire for the borrower’s success. Let us help you find a productive loan that meets your financial goals and means. If you're ready to start your home buying process, we can start by simply getting to know each other. Set up your introductory meeting here to help us help you!