The sub-prime mortgage crisis is a perfect example of a mortgage trap. Unscrupulous lenders would offer mortgages to clients with no money down. While the initial interest rate was acceptable to the client, eventually the mortgage was sold to a third party and the interest rate skyrocketed, leaving the new homeowner facing foreclosure.
Here are some suggestions for new homebuyers.
1. Choose a lender that is well-known, such as a bank or private institution.
2. Acquire a list of the fees that will be incurred.
3. Ask if there are any pre-payment penalties (these usually occur with ARMs)
4. Obtain the lowest interest rate possible by comparing several banks and lenders’ rates.
5. Be prepared to place a minimum of 20% down.
6. Compare the adjustable rate mortgage against a fixed rate mortgage.
7. Watch out for mortgage discounts as they may include a hefty fee.
8. Research a reverse mortgage thoroughly before you consider it.
9. Inquire about insurance fees.
10. Have the home appraised by a qualified and approved appraiser.
With so many homes in foreclosure, there is another scam that has become pervasive especially among homeowners that are close to losing their home. It works like this:
Let’s assume the bank has notified you that your home is being foreclosed upon. An individual offers you a deal to keep your home. He sells the home to another party and asks the owner to sign a paper which turns out to be a lease agreement for a specified period of time. When the homeowner is in a position to buy the home back, the amount is so high the original owner cannot afford to purchase the home. Meanwhile, the scam artist has made a hefty sum.
The moral of this story is to make sure the lender you are dealing with is a well-known institution with a solid record, and avoid the pressures by real estate agents.
One can make the same analogy when purchasing an auto. Dealerships have an in-house finance unit in which they pressure you into utilizing an insurance company of their choice. You may already have a very good insurance company, but if faced with a choice of saving a few hundred dollars using another car insurance company, the trap may be unavoidable.
No matter whom you deal with, research the company before you set up a meeting with them and take a few days to make your final decision.
Loans
Whether you are seeking a loan to buy a car, a college loan, or a home equity loan; there are just as many traps in this area as well.
To avoid these traps, you will need to begin research different banks and lenders to compare the following:
1. What is the APR?
2. Are there any fees if you pay off your loan early?
3. What is the insurance rate on the loan?
4. What is the interest rate and how is it derived?
5. What is the default fee?
Just as with credit cards, applying for a loan can have its disadvantages and traps. For example, a consolidation loans either through credit card companies or home equity loans prolongs long-term debt.
In addition, if you make a late payment or default, your credit rating suffers and your FICO score is reduced to the point that any future loan may be impossible.
Now that the Federal Government is taking over student and consolidation loans, go to: http://www.govloans.gov/govloans_en.portal?_nfpb=true&browseLoans_1_actionOverride=%2FBrowseAllLoansFlow%2Freport&_windowLabel=browseLoans_1&browseLoans_1currentSubType=5&browseLoans_1bid=602&_pageLabel=gbcc_page_browse_loans.
In addition, you will find information on all types of student and business loans at:
http://www.govloans.gov/govloans_en.portal?_nfpb=true&_pageLabel=gbcc_page_browse_loans&_nfls=false.
Let’s discuss consolidation loans for a second. Assuming you need a loan to pay off your credit card bills or other debts, it is important that in doing so cut up all credit cards and keep one just for emergencies.
Keep in mind, however, that the interest rate of the loan may be higher even though you are reducing the amount you pay each month.
Furthermore, since most banks are hesitant towards lending, your FICO score will have to be in the high 700s for the bank to even consider giving you a loan.
