How to Avoid Predatory Subprime Loans

How to Avoid Predatory Subprime Loans

Subprime loans have been all over the news lately and some individuals blame the current real estate crash on those same sub prime loans.

With all the news recently about the housing market crash and the historically high foreclosure rate here in the united states you might question why people would ever look for sub prime loans and why in the world would anyone take one of these sub prime loans to start with.

Subprime loans were presented to borrowers who either had poor credit which wasn’t allowing many to qualify for one of the “A” credit mortgage loans or those who were having problems proving income.

Most of the sub prime loans went into default because greedy financial institutions relaxed their general lending guidelines so that a even a squirrel with a pen could buy a house.

The sad part is financial institutions only care in the world was to show bigger profits so their stock continued to climb, making the top executives amazingly rich.

They blatantly gave “A” paper negative amortization loans and sub prime negative amortization loans along with main stream ARM’s and interest only loans to those they knew would fail.

Established sub-prime mortgage lenders provide a indispensable service to many borrowers looking to purchase a home. By providing financing to those with unfavorable credit, sub prime lenders with high morale corporate bylaws offer a valuable financing options, although it seems exceedingly hard to find one of those these days.

Nevertheless, predatory sub prime loan lenders do take advantage of people with awful credit by charging steep fees, forcing foreclosures, or taking deeds. To protect yourself in your sub prime loan search, avoid these common mortgage scams.

Subprime Loans with Extreme Interest Rates And Fees

Predatory subprime loans usually require a borrower to pay excessive upfront closing costs or steep fees. Some state laws do a weak job of protecting consumers by putting limits on sub prime loan interest rates or fees.

If you have unfavorable credit, you should be paying no more than 6% higher than a conventional “A” credit mortgage loan. Limits on closing costs vary, but anything more than four points should be viewed a scam unless detailed reasons are given and explained in writing.

Subprime Loans that Force Foreclosures

Another sub prime lending scam requires lending to people so they will be forced into foreclosures. These types of sub prime loans usually have monthly payments so high, no one could possibly pay them.

They lure borrowers in by promising guaranteed approval, but these sub prime lenders charge huge interest rates. Before you sign a sub prime loan, be sure you can afford the monthly payments.

Demanding Title

A developing scam involves supposedly refinancing your sub prime mortgage, but in reality the scammer is pocketing your cash and title.

There are many variations on this scam, but normally these con-artists will solicit those who have liens against their home or received a foreclosure notice. They make promises of resolving all your financial troubles if you turn over your title and pay an up front fee.

The scammer will then file for bankruptcy in your name that will be dismissed since a 3rd party started the process, but it will still leave a mark on your credit report. The scammer will also take mortgage payments from you, even though they did not even pay off the first mortgage. In the end you might lose your home.

You Must Protect Yourself

Protect yourself from scams by being a savvy shopper. Call For quotes that include interest rates and fees from several sub prime lenders before picking one. If you have any questions, talk with the sub prime company. Legitimate sub prime lenders will be happy to explain the process and answer any of your questions.

Once you pick a sub prime mortgage lender, be sure to read all forms before you sign the paperwork. According to federal law, you have 3 days to cancel your subprime mortgage after you sign at closing.

You will also be refunded all fees, except for any application fee, that may have been involved, this charge is outdated as no one should be charging you an application fee, even on a sub prime mortgage.