Learn the Warning Signs and Avoid Predatory Lenders

A home is perhaps the largest and most expensive investment you will make. It is also the most important because it provides shelter for your family and builds equity as you pay your mortgage. This is why potential homeowners should be very careful to avoid predatory lenders -- unscrupulous lenders who attempt to take advantage of less-savvy home buyers.

Of course, it is important to avoid predatory lenders regardless of what you are buying. While it is easy to focus more on home mortgages than other purchases, predatory lenders wear many hats. You might be buying a car or furniture, or taking out a personal or home improvement loan. All of these are scenarios in which predatory lenders might lurk.

Know your risk factor

Some people are at greater risk for predatory lending than others, and these are the individuals who should take extra steps to avoid them. According to the U.S. Department of Housing and Urban Development, those most often targeted are inexperienced purchasers, first-time home buyers and the elderly. Young adults can also become victims because they are unfamiliar with how loans work and may be more trusting when a loan officer tells them to sign on the dotted line. Make sure you carefully read all documents and ask questions if you don't understand something.

Beware of sales pitches

Avoid predatory lenders by watching out for strange behavior such as long, drawn-out sales pitches. If a lender is trying too hard, there is probably a reason. This also goes for lending processes that seem to happen too quickly. If the loan officer doesn't ask for things such as income verification, permission to run a credit check and other information, they are probably not legitimate. True loan officers need this information to determine your creditworthiness.

Whenever you take out a loan, whether it's a mortgage or something else entirely, you have the right to see all documentation involved

Demand full disclosure

Whenever you take out a loan, whether it's a mortgage or something else entirely, you have the right to see all documentation involved. This includes disclosure of fees, from the interest rate to any late fees you might incur. This is one of the best ways to avoid predatory lenders. You have the right to ask, "Are there any other fees or charges associated with this loan that you have not told me about?" This is a simple question that requires a simple answer. If the loan officer balks at the question or gives you an unsatisfactory answer, leave.

Don't borrow more than you need

In some cases, predatory lenders will attempt to convince you to borrow more money than you actually need. They will try to convince you that increasing the loan by 10 percent, for example, will give you more security or improve the loan terms. To avoid predatory lenders, decide in advance how much you need to borrow and refuse to budge from that figure. It is also important to determine whether you can afford to repay the loan. It is easy to get swept up in the romanticism of "money on demand," but if the payments will stretch you too thin, you stand to lose much more than you realize.

Find an ally

If you are worried that you will not be able to successfully avoid predatory lenders on your own, find someone to help. It might be an attorney, a parent, a mentor or a financial adviser who can provide neutral advice and protect your interests.

Comparison shop

Finally, one of the best ways to avoid predatory lenders is to do your research. This can protect you from paying exorbitant fees and interest rates, and from falling prey to the myriad scams currently popular in today's economic climate. For example, don't obtain a home improvement loan facilitated by the contractor. This is a common setup for a scam; you are much better off obtaining a loan separately to avoid predatory lenders. The same goes for a home mortgage; research lending options separate from any professionals involved in the home-buying process.

Steve Thompson

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