In today's competitive housing market, it is very difficult to find a decent home. If you are lucky enough to find one, the next important thing is to get help from a real estate planner & arrange the loan. You should be alert in this situation, as you might encounter with a desperate real estate agent or lender who can manipulate your finances.
There are some deceptive practices which are often used by real estate agents & lenders in the mortgage lending process. These tricks not only can turn the home buying process difficult but also whip up a little panic among the new homebuyers.
Now, let's have a quick view on the signs that can lead to home buying distress.
1) Aggressive offers – To draw the attention of the new homebuyers, some lenders aggressively quote low prices which they don't honor later. Once the interested buyers enroll, they manipulate them with bait and switch technique & compel them to choose a new loan plan. The lenders often says “This isn't the appropriate loan plan for you” or similar words to play a deceptive mind game.
2) Referrals – When you shop for some new service or product, it is always preferable to have a recommendation. Generally, new homebuyers are much anxious about the whole process of buying. They think in this competitive market that any rival buyer cannot easily grab a lucrative opportunity if he or she doesn't act quickly. Some greedy real estate agents take advantage of their vulnerability & often push them to pick their in-house-mortgage lender. If you, as a new homebuyer select the same lender, the agent will earn a lucrative commission which is illegal.
3) Extra fee – When you submit your loan application to a lender , you will find that the lender asks for additional payments after the closing. According to the Real Estate Settlement Procedures Act (RESPA), a lender must give you an estimation of the closing cost, but he can not add any extra cost further. So, make sure to get an itemized report of the closing cost when you apply for the loan.
4) No PMI – If you are unable to pay 15% or more of your total mortgage as down-payment, you have no other option but to opt for the Private Mortgage Insurance (PMI). Lenders generally ask for PMI when your down payments is below the minimum 15 percent mark & later on cancels it when your home equity becomes 20% or higher. But it is not at all in your hand to stop that payment. It is totally the lender's prerogative. PMI may require an extra upfront fee on your monthly payments. Your lender will choose the insurer, so you need to understand the terms & conditions before grabbing the bait.
5) Fake discounts – In some cases , your real estate agent might show you low-value/newly-built properties with a bumper discount offers. The agent will over-state the price of that property to lure you into getting the discount. To shop the discount, you have to select some finance-scheme provided by the agent. It is not advisable to opt for the property which is advertised in two different prices. It may reflect different purchase method which is totally misleading for the customers.
6) Borrower's rebate – If you choose a high-rate-loan plan, make sure to check for any rebate that you may get. It is often seen that the lenders may pocket the rebate amount if you do not claim for it. You should ask about the lowest rate possible & the required “POINTS” associated with it. Choose the rate wisely with the maximum rebate amount.
7) No-cost loans - Some lenders offer no-cost loans with high rate of interest. These are merely a scam as they already add to the cost of settlement & other related costs on the loan amount. So, if you have plans to get this offer, you might be borrowing much more money than required.
8) Prepayment manipulation – Many new home buyers tend to pay their principal loan as early as possible to reduce the interest amount. Often those payments are shifted to an escrow account in-spite of reducing the principal. Lenders do not want to decrees their income which comes from your monthly interest payments. That's why they manipulate the amount to keep the principal intact. It is your duty to check your payment status periodically to avoid such kind of misuse.
9) Gazumping – If a greedy agent accepts a higher selling price, in-spite of his previous agreement with another buyer regarding the same home, that will be called as “Gazumping”. The original buyer has to improve his offer or else he will loose the deal. This might frustrate the buyer as he has already paid a lot toward the deal.
These are some of the most known dirty tricks which lenders/real estate agents use to lure you. Hence, stay focused to ignore those traps & choose the best deal for yourself .