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Avoid These Common Mortgage Scams

Welcome to National Homeownership Month! While finding and financing the perfect home becomes a reality for millions of Americans every year, too many become victims of mortgage fraud, including refinance rip-offs. We have some tips to help you avoid these home loan scams and how to protect your family from financial loss.

Spotting Common Mortgage Scams

According to the Federal Trade Commission, overall losses due to scams have risen sharply in the last year. To avoid becoming a victim, watch out for these mortgage cons.

Insanely Low Interest Rates: If a rate sounds too good to be true, it probably is. These scams involve tacking on hidden fees or even bait-and-switch tactics that move you from one loan to another with a much higher interest rate. Once you’re locked in, it can often be too late. Be aware that even if there are no hidden fees or other switch tactics, you may be forced to buy points to get the as-advertised rate. Buying points can add thousands of dollars to the cost of a home loan.

Thanks to the Truth in Lending Act, every lender must provide you with a loan estimate. This allows you to see the real cost of a mortgage, spot hidden fees, and quickly know if you will be required to buy points.

Loan Estimate Not Honored Scams: Lenders are required to provide a loan estimate. However, fraudulent institutions might not honor those estimates. Additionally, to get a loan estimate, you are ONLY required to pay the credit report fee. No other fees should be required.

Loan Modification Scams: Anytime a borrower is more than 120 days late with their payments, the lender can begin the foreclosure process. It can be a scary time for any family. Loan modification offers promise to fix the problem and stop the foreclosure process. However, many of these offers are scams, including lease-back and repurchase scams, partial interest bankruptcy scams, and refinance foreclosure rescue scams.

Phantom Help Scams: These scams offer to help re-negotiate your monthly payments or avoid foreclosure. However, all you’ll end up getting are high fees and nearly no help.

Prepayment Penalty Scams: Look closely for prepayment penalties before you sign a mortgage. These fees can add up to thousands and often catch homeowners off guard as they refinance their loan with another lender.

Reverse Mortgage Scams: If you own your home and it has some equity, a reverse mortgage can give you cash for other expenses. You then repay the money over time. However, criminals posing as legitimate lenders will promote this type of loan as a government benefit with little-to-no payments.

Mortgage Fraud Checklist:

  • Avoid upfront fees.
  • Read every document carefully.
  • Verify credentials before trusting anyone.
  • Don’t give out personal or financial information to anyone you don’t know or trust.
  • Double-check with the Better Business Bureau or a local Real Estate Agent.

If you become the victim of a home loan scam, report it to the FTC and your mortgage lender as soon as possible.


All loans subject to approval. Equal Housing Lender. NMLS#447584. Insured by NCUA.