Common Mortgage Scams

The last thing you need during the typical home-buying process is to find out you have become a victim of fraud. A mortgage scam can jeopardize your dream home or leave you spending more money than you can afford. Be aware of these predatory practices and how to spot a mortgage scam.

1. Fake Loan Offers

Research your lender. While you want to find the best interest rate and terms, you also need to find one that you can trust to be legit. Some scammers pose as mortgage lenders, calling and sending emails that offer “guaranteed approval.” These offers usually request your personal information upfront and collect fees to go over the details. Red flags to look for with this type of scam:

Urgent tone in the calls or email, requesting you act fast (usually within 48 hours or less) to get the offer
No credit check. If you are worried about your credit score and receive a “bad credit doesn’t matter” type of offer, don’t accept it. More than likely, it comes with terrible terms and comes from a predatory company that targets lower-income individuals.
Vague terms. Don’t share information for a mortgage without clear details, like term length and interest rate.

2. “Hail Mary” Foreclosure Rescue Scams

Struggling with mortgage payments and facing foreclosure? Predatory lenders may offer to “save” you—for a fee. They pose as mortgage relief, promising help after you pay upfront. They may claim your situation is handled while you still receive foreclosure notices. Soon, they disappear—and so does your ability to stay in your home.

3. Prepayment Penalties

Do you pay more than the minimum payment on your mortgage? Check the terms of the loan before you sign it. Some mortgage lenders want to collect interest from you for as long as possible, so they sneak in a prepayment penalty into the fine print if you pay off your mortgage before your agreed-upon term is up.

4. Bait & Switch Scheme

Did you find a too good interest rate? Some unscrupulous lenders will waive an enticing offer just to get you “in the door,” then switch out the rate and alter other parts of the loan terms at closing. If you haven’t been through a mortgage closing before, it’s about 30+ minutes of signing a mountain of paperwork.

While your instinct to make the process go faster is to just sign without reading, stop and check the important facts about your loan, such as the amount borrowed, the interest rate, and the monthly payment. If these do not match with what you agreed upon, your lender may be trying to collect extra money from you. Also, take your time to look for extra papers with hidden fees.

5. Postcard Scams

After you have purchased that dream home of yours, you may notice you suddenly get a lot of mail. Specifically, postcards that list information about your recent mortgage with an urgent message asking you to call the number listed immediately. Do not call the number listed! Mortgages are public record. So, even if the postcard has your lender listed correctly, the amount you borrowed, and your address, look for a small disclosure on the postcard. This disclosure will say it isn’t affiliated with your lender, therefore doesn’t actually have an important matter to discuss about your mortgage.

If you suspect a mortgage scam, think before you react. The common warning signs are messages and pushy people trying to get you to agree to something with urgency or secrecy. The best way to protect yourself is to work with trusted, reputable professionals, like the experts at your local credit union.