Is Your Subprime Mortgage Lender A Predatory Lender

Navigating Subprime Lenders and Avoiding Predatory Practices

Subprime lenders provide financing options for individuals with low credit scores who may not qualify for conventional loans. These loans can be offered through traditional mortgage lenders such as banks, credit unions, and mortgage companies, as well as specialized lenders focused exclusively on subprime mortgages.

Identifying a Good Subprime Lender

A reputable subprime lender will charge only slightly higher rates than conventional lenders and will fully disclose all rates and terms, allowing you to make an informed decision. Good lenders adhere to standard practices, such as charging reasonable fees, answering all questions, and offering fair terms on prepayments.

Recognizing Signs of Predatory Lending

Be cautious of lenders who impose high closing costs, excessive late fees, or large prepayment penalties. These lenders may prioritize profit over providing genuine service. Other red flags include attempts to lend more than your home’s value, forged documents, or a refusal to disclose rates and terms.

Strategies for Finding the Right Lender

1. Comparison Shopping: The best way to find a suitable lender is by comparing offers from multiple sources. This approach will help you find the lowest rates and ensure that you are comfortable with your mortgage lender.

2. Examine Closing Costs: Review all closing costs associated with the loan, including origination, application, attorney, and other fees. Familiarize yourself with these costs through comparison shopping, and be wary of any unfamiliar fees. You should only be charged for actual services rendered.

3. Review Paperwork Carefully: Continue to review your loan documents even after closing. Be alert for any terms that were not disclosed prior to signing. Under federal law, you have three days after closing to cancel the loan. While the lender may retain part of your application fee, you are entitled to a refund of the remaining amount.

By taking these precautions, you can better navigate the subprime lending landscape and avoid falling victim to predatory practices.