home purchase scams – The Latest Online Scams and How to Avoid Them

Most mortgage scams are designed to help home buyers secure a larger loan than they can realistically afford. While it may sound desirable to purchase a more expensive home with a larger mortgage, such arrangements are financially risky, and could end in a short sale, foreclosure and destroyed credit. Recognizing and avoiding mortgage scams can help home buyers purchase properties they can afford while also avoiding financial risk. Types of Scams There are many different types of mortgage scams. Although scams can range in strategy and method, a typical scam will result in the home buyer taking out a larger mortgage, or may result in approval when typically no mortgage would have been possible. Often people who become victims of mortgage scams are buyers who are struggling financially or who have bad credit. Some of the most common scams include: Inflated income: Inflated income scams take income from a short period of time when the borrower is making more money than usual and uses that to qualify the borrower for a loan. Appraisal schemes: Appraisal schemes typically inflate the appraised price of the house to qualify the house for a loan. Sometimes the lender will use an “in-house appraiser” who can inflate the price of the home. Second mortgage schemes: A silent second mortgage is a second loan that is used to make the down payment. This loan is undisclosed on the first mortgage application. Warning Signs of Scams Fortunately, there are warning signs that consumers can use to decide if they’re being scammed. The broker wants to make it look like you make more money than you do: Income qualifications are an important safeguard that ensures borrowers only take out as much as they can realistically be expected to pay. Inflating income to help a home buyer is unethical, illegal and could result in a higher mortgage than the borrower can repay. The broker promises a loan despite bad credit: If you have bad credit, the best way to get a loan is to improve your credit and then seek help from a reputable lender. No good faith estimate is provided: A good faith estimate is a document that outlines the details of the loan, including costs. A good faith estimate should arrive within three days of applying for a loan. If you do not receive a good faith estimate, this is a warning sign of a problem. How to Avoid Scams Mortgage schemes may seem like they’re a help for the borrower, but in reality, they expose the borrower to unnecessary risk and hardship. The best way to avoid scams is by borrowing from a reputable mortgage lender and knowing the different mortgage options available. You can also avoid a mortgage scam by doing the following: Read the fine print of all agreements. Get a referral from a financial advisor or a lawyer. Ask a lot of questions to find out how a mortgage lender does business before you try to take out a loan. Do online research about the lender of your choice. Work With a Reputable Real Estate Agent A good real estate agent will recognize some mortgage scams on sight. Keep your real estate professional informed about your loan and lender, especially if you have questions about your lender’s integrity. Your real estate agent can identify red flags when they arise. Also, your real estate agent may have mortgage lenders to recommend. Asking your agent for a few referrals can give you options as you shop around for the right lender for your needs.