How to Spot an Unethical Lender

One of the biggest issues facing first time home buyers today is finding an ethical lender.  With the current instability of the lending market, many people may find it very difficult to get approved through conventional means.  They are faced with going to mortgage brokers, who work to attract clients, gather required information, and present this information to mortgage lenders.  Today's market is ripe for unethical lenders to crop up.  The focus of this article will be to help home buyers spot an unethical lender.

A certain sign of the state of the mortgage market can be seen by the filing for bankruptcy of American Home Mortgage. NBC reports on August 6th that even people with good credit are finding it difficult to secure a loan.  Unethical lenders see a real opportunity here to take advantage of the current market, and to prey on unsuspecting potential home buyers. Always be sure that you can afford payments on any loan you might wish to make.  Online calculators abound, and help with everything from figuring your debt to income ratio, and how to determine closing costs and points. Remember, states do not heavily regulate lending institutions.  If in doubt, check with local and state agencies to determine what is not regulated.

 Here is what to look for in a lender:

    * The lender will be up front with you, and be open with terms and conditions.
    * He will never ask you to sign paperwork that is not completely filled out.
    * They will help you in determining your credit score, and if you qualify.
    * The lender will help you pre-qualify for a loan, which shows a seller you are truly interested.
    * The lender will give you a Good Faith Estimate, listing all fees and charges.
    * An ethical lender works in a timely manner, and does his best to close the loan quickly.

Now that we have a good idea of what an ethical lender will do for you, let's examine what to look for in an unethical lender.

    * The Good Faith Estimate is an estimate and fees may change thru the course of your loan approval. The final fees at closing may end up being higher than the initial GFE. However, the final amount should be listed on your HUD-1 at closing. This amount should not have deviated from your GFE, UNLESS it has been discussed with your lender or your lender has provided you with documentation in regards to the changes prior to closing.

    * Even though the mortgage broker knows you do not qualify for the loan, he will make every attempt to push it through.  For example, you may be seeking a fixed rate loan without pre-payment penalties; you find at the closing table that this has been changed to an adjustable rate mortgage with pre-payment penalty.

    * Unethical lenders will inflate your reported income, making changes to W-2 documentation so that it appears you are making more than you actually do.  Changes might be made to your debt to income ration to make you look more attractive to the loan processor.

    * Often, an unethical lender will ask you to sign blank documents in the "interest of expediency."  Never sign a document without it being completely filled out.  Even if it is, always put "N/A" in any fields that do not apply, and initial these entries.

    * Often, and unscrupulous lender will ask an appraiser to inflate the actual value of the property you are seeking to buy to make it look more attractive to the lending institution.  They may promise the appraiser more business for this favor.

So how do you protect yourself from these predatory lenders?  Always use good judgment when approaching an institution for a loan.  Educate yourself on current market conditions, the process of applying for and obtaining a loan, and do not be afraid to ask questions of any lender.  If they are on the up and up, they will be honest with you and not try to hide any information.  Always trust gut instincts - if it doesn't feel right to you, it probably isn't.  Trust no one in this situation and always find out all you can about the process.  Don't forget that states do not closely regulate these lending institutions.  Know your rights before approaching any lender.

Always research the current market.  Know that your credit score is good enough to secure a loan before approaching any lender.  Lending institutions can't "fix" you bad credit rating, but can skew figures to make it appear you are qualified.

Always do your own due diligence.  Although you may be anxious to buy your home, don't take a chance of being ripped off by an unethical lender, even if it means you have to continue to rent for a few more years.  A house is a major investment, involving large sums of cash.  Don't jeopardize your livelihood by dealing with an institution that is less than ethical.