Protect Yourself from a Bad Home Loan

What is predatory home lending?

If you need money and own a home, you may consider refinancing your mortgage or getting a home equity loan. (Equity is what your home is worth, minus what you owe for it. With a home equity loan, the lender takes an interest in your home.) Responsible lenders will not make a loan without determining that you are able to repay it. A predatory lender may not look at whether you can afford to repay the loan - just whether there is enough equity (what your home is worth, minus what you owe for it) in your home to make a profit by selling your home if you don't pay it off. Others may squeeze the equity from your home by taking cash from the financing deal, leaving you owning less of your home than you did when you started. Predatory lenders often use high-pressure sales people, charge inflated interest rates and outrageous costs, have unaffordable repayment terms, and use harassing collection tactics.

What does this mean for me?

If you fall behind on paying a home loan, the lender can take your home through foreclosure. The lender then owns your home. Once the damage is done, it is very hard to undo, and most people never get their homes back. Your home equity is just like money and should be protected.

What danger signs should I look out for?

Watch out for ads making promises like: "No Credit? No Job? No Problem!" or
"Don't worry, you have plenty of equity in your home to qualify for a loan" or
"No up-front fees, no income verification." If the deal sounds too good to be true, it probably is.

What can I do to protect myself?

Shop around

Don't trust door-to-door loan sellers, unsolicited telephone callers, or mailersyou receive from companies offering you a "bargain". If you really need or want a home loan, you should make the first contact.

Don't take the first loan you are offered. Shop around with other lenders to compare.

Steer clear of high-pressure sales tactics, such as claims that an offer is good only for a limited time. Ask yourself why someone with a legitimate offer would push you to make a decision without time to think it over. If it's really a good deal for you, chances are it will still be there after you've had time to think.

Look at more than the monthly payments. A lower monthly payment is not always a better deal. Look at how long the loan lasts and the total costs of the loan. Make sure that the interest rate and fees are competitive and fair.

Deal with a reputable company. Get references by asking for names of some clients. Check with the Better Business Bureau, the Department of Consumer Affairs and the Banking Commissioner to see if there are complaints against the company.

Choose your own attorney. You have the right to choose the attorney who closes your loan. Pick one who will answer all your questions and give you independent advice.

Watch out for bad loan terms

Avoid "balloon" payments or loans known as "interest only, non-amortizing or partially amortizing". With this type of loan, you still owe the money you borrowed after you make all the regular payments. You must make one large, final payment, known as a balloon payment. If you can't make this payment, or find other financing, you may lose your home through foreclosure.

Watch out for high interest rates and high fees and closing costs. Closing costs include attorney's fees, document preparation fees, and appraisal fees. Ask about any fees you don't understand.

Avoid prepayment penalties that can cost thousands of dollars if you choose to pay off your loan by refinancing at a later date. In South Carolina, a lender cannot charge you for pre-paying if your loan is under $100,000.

Before you purchase credit life or credit disability insurance, check to see whether you can purchase insurance from another source, which is usually cheaper. If you decide to purchase credit insurance, be sure not to finance the premium into your loan.

Steer clear of monthly payments you cannot afford. Just because a lender says you "qualify" doesn't mean you can afford the loan. If you cannot make the payments, you will lose your home.

Avoid the repeated refinancing of your loan. This can sink you deeper into debt, and you will lose all or some of the equity you have in your home.

Ask lots of questions

Don't be afraid to ask questions if you don't understand something, or if something does not seem right to you. You have the legal right to know:

The total cost of your loan, including all fees, points and charges What insurance is included, and that the purchase of most insurance is voluntary.

* The annual percentage rate

* The monthly payments

* How long you have to pay back the loan

Don't sign:
a blank document or anything the lender promises to fill in later.
Any form with incorrect information
Anything you don't like or understand, even if the lender threatens to cancel the loan offer. You may be signing away your home without even realizing it!
It's okay to say "I don't understand and I will not sign this."

Get outside help

Ask someone you trust to look at your loan, possibly a family member or friend who understands financial matters. Remember - you have the right to choose your own attorney. Contact your local Consumer Credit Counseling Agency. They can tell you if the deal you are considering makes sense, and possibly help you find a better one.

Keep copies of all your loan papers

What should I do if I think I am a victim of a predatory loan?

You have three days to cancel your loan when you are re-financing or taking out a second mortgage. Act quickly if you were pressured into signing a loan you don't want or can't afford. Federal Law gives you 3 days to change your mind.

Contact an attorney immediately if you have any questions about whether your lender violated the law. If you cannot afford an attorney, contact the Legal Aid Telephone Intake Service at (803) 744-9430, or toll-free at (888) 346-5592.

File a complaint with the SC Department of Consumer Affairs, at (803) 734-4200

or toll-free within South Carolina at (800) 922-1594, or the Board of Financial

Institutions, at (803) 734-2001.

Spread the word about bad lenders to your neighbors and friends.

Made available by the South Carolina Appleseed Legal Justice Center,P.O. Box 7187, Columbia, SC 29202 (803)779-1113

Modified from materials developed by the Coalition for Responsible Lending,

based in part on materials produced by the Community Reinvestment Association of NC, the Consumer's Union and AARP.

from: http://www.scjustice.org/pdfs/Protect%20yourself%20long%20version2.pdf