Identifying a Fake Housing Deal: a Guide for First-time Homebuyers

Identifying a Fake Housing Deal: a Guide for First-time Homebuyers

first time home buyer couple speaking to their agent

Fraud is the most commonly experienced crime in the UK. It costs individuals, small businesses, the public sector, and even major corporations billions of pounds every year. Cases range from counterfeiting goods to market abuse, which includes the housing market.

Scams in the housing market are called mortgage scams or mortgage fraud. It is the act of deliberate misrepresentation and deceit. The scammer will provide the victim with false information, facts, and figures. As such, mortgage fraud is not limited to predatory lending practices.  There are, in fact, two distinct areas of crime: fraud for profit and fraud for housing.

Fraud for Profit

Fraud for profit is carried out by industry insiders that abuse their knowledge and authority to take advantage of inexperienced buyers.

These scammers don’t necessarily take your money and run away with it. Instead, they may charge you extra fees, claiming that they’re for miscellaneous particulars, for example. In the end, you had paid more than what you should and got robbed of the benefits your mortgage is supposed to come with.

Fraud for Housing

This type of mortgage fraud is carried out by the borrower instead of the lender or insider. A fraudulent borrower may falsify their income and asset information to get a cheaper deal. They may also entice an appraiser to manipulate a property’s appraised value.

It is equally important to know about fraud for housing and profit. That’s because if you’re buying a home for the first time, some peers of yours may encourage you to use underhanded tactics and call it money-saving hacks. But misrepresenting your income and asset information are forms of fraud, which you now know, allowing you to avoid a potential legal dispute.

How to Identify a Mortgage Fraud

a mortgage broker discussing terms of the contract with black American couple

When you buy a house, you can approach two types of professionals: a real estate agent and a mortgage broker. A real estate agent deals with the sales of the property itself. They act as your representative when you negotiate with sellers.

They’ll also help you find available houses in the market within your budget. It is not part of their job description to refer you to a lender, but they can guide you throughout the financing process. When you finally close a deal and gain ownership of a house, the real estate earns a commission.

On the other hand, a mortgage broker matches you with a lender that can offer the ideal terms for you. Simply put, they don’t find houses for you, but loans. This is where your situation can get risky because there would be circumstances out of your control. To avoid getting scammed, keep in mind that a legitimate and trustworthy mortgage broker won’t do the following:

  • Disregard Your Ability to Repay

When you get a loan, a lender will always consider your ability to repay before approving your application. If a broker tells you that they can get you any loan without showing your financial information to lenders, start being wary. You might end up with a debt that you can’t afford to repay.

  • Charges Excessive Loan Costs

Loan costs cover the closing costs and interest rates. Overall, it shouldn’t exceed 5% of the total loan amount, two percent to 3% if the loan amount is relatively small. If the broker charges you any more than 5%, ask why before taking out your money.

  • Charges Penalties that Aren’t Included in Your Contract

Some loans charge a penalty if the principal is paid too early. But it should be stated in the contract. If a lender or broker claims that you may need to pay penalties, but it’s not in the contract, consult a lawyer or demand more transparency from your lender or broker.

  • Refuse to Disclose How They Are Paid

Both real estate agents and mortgage brokers should be transparent about their commissions. They don’t have to disclose the exact amount, but only the percentage. This helps you determine if you’re being overcharged and them overpaid.

  • Claim that Bad Credit Doesn’t Matter

While some loans are available for borrowers with bad credit, a mortgage isn’t usually one of them. It’s often the most expensive loan in the market, so it takes credit into account. If a lender disregards your credit score or record, find a new one immediately.

If the claims are too good to be true, it’s most likely a scam. Do your research before working with any professional so that you’d know what to expect and the qualities of a trustworthy agent, broker, or lender. Getting scammed is traumatic, so avoid it at all costs.

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