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Predatory Lending Explained

Predatory Lending Explained
Mark Cappel
UpdatedJun 13, 2024
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    3 min read
Key Takeaways:
  • Learn six ways to avoid predatory lending.

Learn More About Predatory Lending And How To Avoid It.

Predatory lending is a bad as it sounds. Predatory lenders take advantage of homebuyers with low credit scores, high debt, poor credit histories, or little financial experience. Although the lenders make a lot of promises, the homebuyer usually ends up much worse off.

Typical predatory lending practices include:

  • Charging higher rates due to race or nationality
  • Charging junk fees
  • Charging significantly higher costs at closing than previously estimated
  • Using dishonest appraisers who overstate the value comparable to area homes
  • Making a loan for more than the home is worth
  • Encouraging you to lie on the application
  • Demanding that you accept their offer immediately
  • Offering federal loan guarantees
  • Encouraging you to repeatedly refinance into loans with high closing costs and no benefit to you.

How to Avoid Predatory Lending Practices

When shopping for a loan, ask for referrals from people with good interest rates who are happy with their lenders. Avoid the hard-sell, wild promise radio ads or telephone calls. You should also take the following precautions to protect yourself from predatory lending:

Get several loan offers

Never accept the first loan offer. Shop around for two to three mortgage offers. Compare the costs, interest rates, and fees.

Ask for a list of fees in writing

Lenders should be willing to explain their costs to you and give you a good faith estimate of the costs before you apply. At least one day before closing, request a HUD-1 statement of your fees. If it's significantly more than the estimate, ask your lender to remove them. Don't agree to extra "products" that they try to sell you at the last minute.

Don't make false statements on your application

You should accurately report your income and debt on your loan application. If your lender encourages you to lie, find another lender. Lying on a loan application is fraud.

Don't sign a blank document

Never sign a blank form provided by your lender. If a form has any uncompleted blanks, put lines in them or write "N/A" in them. If you don't and the lender later inserts information, you could be held liable for it.

Don't accept a 100% loan.

Never finance the entire cost of the house. A down payment of as little as 5% provides you with an equity cushion in case of a downturn and improves your position in the eyes of lenders.

Hire independent appraisers

If your lender's appraiser values the home at far more than you expected, hire an independent appraiser directly. Predatory lenders often push appraisers to value homes for more than they are worth so they can give you a larger loan. Unless home prices rise quickly and significantly, you won't be able to sell or refinance before your interest rate jumps.

Most lenders are honest and want you to be in a home you can afford. Predatory lenders profit off your inability to pay. If you suspect your lender is engaging in predatory mortgage lending practices, find another lender. It may be a hassle, but it is worth it.

The Latest on Mortgage Rates

It is expected that mortgage rates are subject to change. Homebuyers and those refinancing their mortgages should pay close attention to the latest mortgage rate

Mortgage rates April 10, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of April 10, 2024 stands at 6.88%. This 6 basis points increase from the previous week's rate.
Additionally, Freddie Mac reports that the 15-year mortgage rate for April 10, 2024 is 6.16%, indicating a 10 basis points increase from previous week’s rates.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.

Understanding the impact of mortgage rates on your finances
When it comes to determining your monthly payment, mortgage rates are a key factor to consider. Here are the avergage interest rates (APR) for April 14, 2024 based on Zillow data for borrowers with a high credit score (680-740) in the United States:

  • 30-year conventional loan is 7.09%
  • 15-year conventional loan is 6.29%
    Based on the provided rates, a $279,082 30-year mortgage would result in a monthly payment of $1,874. Alternatively, a 15-year mortgage would require a monthly payment of around $2,399.

Explore your options and secure pre-approval today!
To make your life easier, we highly recommend shopping around for mortgages and getting pre-approved. This will streamline the home-buying or refinancing process and make it a breeze. Ready to get started? Check Out mortgage rates now for the best options available.