Private mortgage insurance (PMI) can be an expensive requirement for your home loan, as it adds more to your monthly payment costs. This is a safeguard that your lender will take out to cover a portion of the amount you borrowed in case you default. Up Next: P.I.T.I.: Understanding The Parts Of Your Mortgage Payment […]
3 Common Mortgage Fraud Schemes & How To Avoid Them
Purchasing a home is a complicated process that involves many parties. Whether it is your first time purchasing a home or you’re an experienced buyer, you must be aware of fraud designed to cheat you out of your hard earned income and your home.
Up Next: No Money Down Mortgage: Is It Right For You?
Here are some of the most common mortgage fraud schemes and how you can avoid them. Please remember that this is not a comprehensive list, as many forms of mortgage fraud exists.
You Are Pressured To Use A Straw Buyer
A straw buyer is someone who makes a purchase on behalf of someone who cannot afford the purchase themselves; for example, a student with poor credit purchasing an automobile and using a parent’s credit in order to obtain financing.
While this instance is not illegal, it is illegal when a straw buyer is used to purchase property for someone who legally cannot or to secure financing from multiple lenders with the same property as collateral.
In many cases, the straw buyer is also unaware of the scheme.
If you cannot obtain financing on a home due to your creditworthiness, work on improving your credit score and pay off some debts.
You Are Encouraged To Falsify Documents
A reputable company and agent will never ask you to falsify documents and information such as your income. Providing false information is not only illegal but will get you in trouble down the road when you cannot make your payments because you bought property you couldn’t afford.
Never sign a blank document!
Signing a blank document is a surefire way to “agree” to unknown terms and conditions that the lending party can insert later.
Promises To “Rescue” You From Foreclosure
Mortgage fraud schemes aren’t limited to homebuyers—homeowners can be affected too. Homeowners who are facing foreclosure are approached by a party who promises to pay off their debt so they can stay in their home and “rent back” from the investor, even transferring the title to the “investor” as collateral. Here, a straw borrower is used.
Upon closing, the homeowner finds themselves evicted from their home while the “investor” pockets the home equity while the straw borrower defaults on the loan.
Report Mortgage Fraud Immediately
If you come across signs of mortgage fraud or experience it directly, report it immediately to state and federal departments such as:
- State Attorney General
- Federal Trade Commission
- S. Department of Housing and Urban Development
- Consumer Financial Protection Bureau
By reporting mortgage fraud you are helping protect others from dishonest parties and making shopping for and owning a home a safe experience.
Be Wary Of Social Media
Social media is a great resource for finding homes in your area that may otherwise go unnoticed but be wary when coming across a post or an ad claiming to offer schemes like foreclosure rescue, short payoffs, or builder bailouts.
Do Your Research
Before you settle with a mortgage company always do your research on them. What reviews do they have? How long have they been in business?
Ask for referrals from your friends and family and check out sites like the Better Business Bureau to view any complaints against the company. A company or agent’s social media pages such as Facebook is also a good place to start.
Finding the right mortgage shouldn’t be hard. SmartMortgage has honest, experienced agents that will guide you through the process of finding the best mortgage for you and your needs. You are highly encouraged to ask questions and we are more than happy to answer them.
If you ever feel uncomfortable or that something is wrong, back away and find another lender.