When buying a home for the first time, there are a lot of pitfalls to avoid; and one of the biggest ones is mortgage scams. Fraud is extremely common in high value marketplaces, like housing, because the market is full of a lot of people who are not familiar with the process. Different types of fraud can happen on either the mortgage lender side or the home seller side. So before buying your first home, it is important to understand what kind of fraud can happen during the process and how you can avoid it. Below are the most common types of mortgage scams and how to avoid them.
Bait and Switch
The most common scam is the classic bait and switch. This happens when a lender presents a buyer with a home loan and then right before they are ready to sign the contract, they will switch it with a different home loan with less favorable terms. This can happen because in lending situations, the lender assumes a position of authority and can make a potential buyer feel confused and threatened. First time buyers may sign whatever a dishonest lender will put in front of them just because they may not know any better. To avoid this, you should make sure you work with a trusted and experienced lender, as well as understand the terms of the mortgage you are signing. Be sure to ask lot of questions and to get those answers in writing. Also, you should carefully read every document presented by the lender and check them for consistency.
Another scam involves lender fronts that are set up with the sole purpose of stealing personal information. Whenever someone goes to apply for a home loan, a credit report is required. This means you will have to provide your full name, date of birth and social security number to get approved. All buyers should make sure they are working with a trusted lender that is a legitimate lending source before revealing any private information.
Finally, a new home buyer should be on the lookout for illegal flipping schemes. This is one of the more hard-to-spot mortgage scams. This involves a third party appraiser over-inflating the value of a home so the lender can offer a much larger loan than the property is worth. This benefits both of those parties, because they target people who are not as knowledgeable about the market value. The best way for a potential buyer to avoid this is by knowing the general value of the area and what the house has sold at in the past.
Information and first time home buyer education is key to avoiding these types of mortgage scams. A potential homebuyer needs to always come prepared with as much knowledge about the process of buying a home that they can. To avoid mortgage scams and become an informed first time home buyer, download our educational eBook now!