With the recent upheaval in the mortgage lenders market the instances of predatory lending practices have decreased. These lenders used high pressure sales tactics to induce manufactured home buyers into home loans with high interest rates and junk fees tacked on. With that said it still is in the home buyer’s best interest to be aware of these types of lenders and take the proper steps to protect themselves.
The hard part can be spotting less then honest home loan lenders. The easiest way is to get multiple quotes from several lenders and then compare the interest rates, terms, and fine print included within the quotes. Even borrowers with good credit need to protect themselves from these predatory practices.
Here are some of the more well known predatory lending practices: Predatory lenders will keep homeowner’s unaware that they may qualify for lower interest rates. They also add unnecessary costs, referred to as “junk fees”, to their loans. They are also more active in getting their customers to refinance repeatedly in order to collect more loan fees.
Homeowner’s can protect themselves by learning how to shop for good loans that protect their home investment.
The first thing the prospective manufactured home buyer needs to do is obtain a copy of their credit report and FICO score. All three major credit reporting services are required by law to provide consumers one free report per calendar year. The better the credit rating the better the loan terms will be.
If the borrower has bad credit he or she is more susceptible to these types of loan practices because they are considered a high risk borrower. Poor credit means the prospective homeowner will not be offered the best loan terms with the lowest rates. Instead they will qualify for what are called sub-prime loans which need to be approached with caution.
Sub-prime loans have the following characteristics; high interest rates and fees with monthly payments that may only cover only the interest owed and does not reduce the principal balance. They may also have adjustable interest rates that change at designated times resulting in an increase in the monthly payment. Many sub-primes also have pre-payment penalties which prevent the homeowner from paying off the loan early. And lastly a balloon payment due once the loans term is up.
It is best to avoid any loan that has these types of terms in the paper work.
The best way to avoid possible problems is by getting more then one quote from multiple sources including local banks, credit unions, or mortgage brokers who have a good history of brokering loans. Any good lender will offer a Truth in Lending Disclosure which states the basic terms and conditions of the loan they are offering the borrower. This form should also include the interest rate and monthly payments which should not change at closing.
By getting multiple quotes from manufactured home loan lenders the homeowner can compare terms and weed out those lenders that may be less then they seem.