How to Avoid Predatory Lenders

The housing market can be quite volatile and predatory lenders make it worse. Conditions in the overall economy can cause swings in the real estate market and the job market. But if you need or want a home for your family, you shop in all kinds of market conditions.

Instructions

Difficulty: Moderate

1. Know that predatory lenders are especially active when the market is tough. Look at your financial situation realistically. If you already struggle to make ends meet, don't fall into the trap of lenders who advertise easy loan-processing for people with bad credit.
2. Contact several banks, mortgage companies and lending institutions when you are looking to buy real estate. Look for the lowest interest rates. Ask about their policy on penalties if you pay off your loan early. Be sure to look at the total cost of the mortgage loan, not just the monthly payments. Avoid predatory lenders by remembering that some will offer low payments, but the overall cost of the loan is higher than normal.
3. Avoid predatory lenders who use "balloon payments." This type of loan may offer low monthly payments, but at the end of the loan term, you must pay a huge pay-off amount. More often than not, homeowners have not been able to put money aside to cover this "balloon", resulting in loss of the property.
4. Read the fine print on loan contracts. Make sure nothing can be done with your loan without your knowledge and consent. Look out for stipulations that allow for unauthorized refinancing of the loan.

Tips & Warnings

• Ask a lot of questions in order to avoid predatory lenders. If you don't understand terms and conditions of a loan, ask a trusted friend who is good with finances to read it for you before you sign.
• A promise by a lender to refinance a loan to a better interest rate in the future is often a red flag. If your credit rating is not good enough now to merit the best interest rate, why would the lender assume it would be later?