Predatory lending is a tricky beast. It takes a variety of different forms that can trick even the most perceptive person into a bad situation. While none of the practices we discuss today are illegal, they are definitely immoral and not in your best interest. We want to make it clear what they are and how you can avoid them.
We sat down with Irene Kiersblick, our HUD certified Housing Counselor with over 40 years of experience to talk about predatory lending practices that she sees on a daily basis.
1. Anything can be predatory. Saying no is a valid choice.
We want to stress this point before we get into anything else. We’re all guilty of not doing our due diligence when we’re presented with a contract. How many of you have actually read the terms and conditions of new software when you’ve installed it on your computer? It’s overwhelming and frustrating, even in the best of circumstances.
“If you don’t read what you’re signing and you don’t understand what you’re signing, that’s predatory,” said Kiersblick. “Most people feel pressured to sign right away because they’re worried they’ll lose their house or their loan. People are afraid to say no because they don’t want to look like they don’t know what they’re doing.”
You always have a choice, and sometimes saying no is the better option. “Loans have a three day right of rescission where you can cancel the contract in writing and not be obligated to the loan. You shouldn’t feel pressured to sign anything,” said Kiersblick. “If someone is pressuring you to sign something, it’s a red flag, and if it sounds too good to be true, it usually is.”
2. Don’t rent to own.
If you’ve ever rented an apartment or house at some point in your life, someone has told you that you’re throwing your money away on it. It’s not an uncommon opinion, especially because more people are renting at this point in time in the US than in the past fifty years. Nearly 72 percent of renters would like to own a home someday, according to a 2016 Pew survey, so renting to own seems like a smart idea at first. All the rent you pay goes towards your down payment on the property in the future.
Easy money, right? Unfortunately, it’s not that cut and dried.
“There’s no guarantee that the home will be yours in the end,” said Kiersblick. “It’s not your property until the final payment is made. You have to stay on top of doing what’s necessary to make sure you own it. If your contract with the property owner hasn’t been drawn up by an attorney or you aren’t keeping accurate records, you have no way of knowing how your payments are being applied and how that impacts the balance you owe.”
If you can’t get a conventional mortgage, it can be a temporary respite, but again, there’s no guarantee that you’ll end up owning that home at the end of the day. Don’t go for the glorified rental. You’ll be better off saving your money while you take the steps toward correcting the issues that bar you from getting a conventional mortgage.
3. Don’t rent your furniture or other household items and appliances.
Everyone needs furniture and certain appliances. We can all agree that whether you need a bed or a microwave, both of them are essential items. However, most people don’t realize that renting furniture and other household items is also predatory lending. Regardless of what you’re paying for, you’re definitely not getting your fair share out of the deal.
“Let’s say you want a nicer TV,” said Kiersblick. “If you save for six months and buy a big flat screen TV for $200 from a store, it’s fine. You’re paying what the item is worth once and then you’re done. If you rent a $200 TV for $15 a week, you’re paying three to four times more than the money you’ve set aside and the TV won’t be worth that much once you pay it off.”
4. Stay away from renting or buying mobile homes if you don’t own the property.
Often people view mobile homes as a cheap, inexpensive housing option. It makes sense if you don’t want to commit to a whole house or would prefer something a little more low key. However, there are caveats and mobile homes come with some cons that you definitely need to consider.
“There is no equity,” said Kiersblick. “Mobile homes are considered automobiles under property law, and automobiles depreciates over time. Like a car, its value goes down the second you leave the dealership. You’re putting money into something that will never increase in value. A house’s value can go up.” Mobile homes are also not able to be used as collateral for major purchases or legal proceedings.
Typically, when you purchase a mobile home, you rent or lease the property you’re putting it on. In the eyes of the law, this means you are a tenant, not a homeowner. “You have no rights that a homeowner would,” said Kiersblick. “You fall under landlord and tenant law and the law presumes that you are on a month to month lease with the landlord, which is why you should always read your contract or lease carefully. If your relationship with the property owner changes, it can turn into a tricky situation.”
Even if you own the land and the mobile home itself, that doesn’t mean you won’t run into problems. “When mobile home owners need home repairs, it’s more difficult to get help, loans, or funds because they’re considered to be automobiles,” said Kiersblick. “There are government assisted funds, but if you don’t meet certain criteria, they’re more difficult to find.”
5. Never pay a company to repair your credit.
We’ve said this before and we’ll say it again. Like it or not, credit controls a substantial part of your life, regardless of where you are financially. Companies will try to convince you that you have to pay a monthly fee to repair your credit and that it will solve all your problems. Not only it is expensive, it’s also not true.
“There’s no magic answer,” said Kiersblick. “Paying someone doesn’t mean you’ll automatically be in good standing with your credit. You’ll get a lot further putting aside that money every month to deal with the accounts that need to be addressed. We help people repair their credit here by looking at all their accounts and past debts and making sure that they know where to start. “
We want you to be empowered to make good financial decisions and know that we have your back every step of the way. “We layer our approach and go over everything you’ve done, even if you haven’t been to the bank or a realtor before. After you’ve been told the same thing over and over, it starts to look familiar,” said Kiersblick. “We want you to have the confidence to be able to step back and ask a trusted advisor if you don’t understand what they’re saying.”
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