Shady home loans and bad mortgage offers

This story was originally covered by PRI’s Here and Now. For more, listen to the audio above.

Companies are starting to offer home loans that sound too good to be true: interest rates below four percent, no income verification, no appraisals. The reason they sound too good to be true may be because they are. “There have been more of these offers that have been circulating out there,” AnnaMaria Andriotis of SmartMoney.com told Here and Now. “What consumers need to keep in mind is, there’s going to be a catch.”

Many of the advertised rates are the lowest possible rates out there, and in many cases, they’re not possible at all. Andriotis says, “This is unfortunately a tactic that consumers will see used often.”

The standard rate on a 15-year, fixed-rate mortgage is about 4.59 percent, according to Andriotis. On a 30-year mortgage, it’s about 5.3 percent. And those are for borrowers with good credit scores (720 or higher), credit history, income verification and who have enough money for a down payment. Consumers should be wary of any deals that are better than that, Andriotis says. “That’s as good as it’s going to get right now.”

Anything lower than that may be a so-called “adjustable rate mortgage.” In that case, Andriotis explains, “you could have a fixed rate for the first few years, and then after that the rate starts changing every month.” The only way that makes sense, according to Andriotis, is if “you’re going to buy a home that you’re not going to be in for more than 5 years.”

Whenever the offer seems too good to be true, it becomes especially important to read the fine print. In some cases, the lender may be a “hard money lender” who offers loans without income verification. “They’ll offer you a mortgage, often times for much more than the rates that are available with most lenders,” Andriotis explains. And if the borrower isn’t able to make payments, the companies are sometimes able to go after other assets, like a person’s car. Some have accused these hard money lenders of being loan sharks.

The key question with many of these shady loans is “Why would you as a borrower want to do that to yourself?” Androtis asks, “Why would you want to get a mortgage when you haven’t run through all the numbers and proven to yourself that I can afford this mortgage?” Her advice is to “hold off a bit, wait until you save more money. Otherwise you’re just setting yourself up for what could be a disastrous situation.”

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