How to Avoid Fake Pre-Approvals
By Selena Boyts
You receive a call from an enthusiastic and considerate representative claiming to have an attractive pre-approved loan offer. Before getting too excited, pause and think before you act. More often than not, such calls are made by fraudsters or lenders trying to pull a fast one.
Most of the pre-approved home loan frauds begin with a simple phone call from someone offering you great incentives and interest rates on the loan. They make a lot of promises and claim they can get you a guaranteed pre-approval. That right there is the first sign of a scam. There is no way to provide 100% approval or loan guarantees. First, it’s illegal. Second, there are just too many variables between the application submission and receiving a qualified pre-approval and loan estimate.
As the number of online loan scams increases every day, let me offer you a few red flags to look out for:
- The Loan Pre-Approval Letter: You should always check the following to verify the authenticity of the loan and pre-approval. Keep in mind that just one red flag is enough to be considered a fake offer.
- Check the details of the bank. Does the institution exist? Are there any spelling mistakes? Is the email address and/or website legitimate? Crosscheck the web address and make sure it matches the one on the form.
- Examine the rate being offered. ‘Too Good to be True’ Interest rates are a type of fraud that will lure you in with a low rate and then hit you with a higher rate further along the purchasing process. You can check the offered rate against the market rates by visiting Google or MortageNewsDaily.com. If the rate on the form is significantly lower than the market rate, ask them how they got that rate. If they cannot answer – walk away. (example: 4.375% rate is offered when the rates are in the mid to high-5’s for the same product and term)
- Fees: You should never trust anyone who asks you for any fees upfront. Legitimate financial institutions never ask for money to approve a loan. It is illegal to do so. Anyone who is eager for you to sign a deal and asks for any amount of payment should be reported to the CFPB at gov.
- Financial situation: If the so-called loan officer offers you a pre-approval without researching your financial situation — including income, credit reports, taxes – it is not a legitimate offer.
- Application: A completed 1003 mortgage application is required for all pre-approvals. If you have not been asked to do there is a pretty good chance that you are being duped. Lenders in the U.S. use the 1003 Form to evaluate potential applicants, including borrowers seeking refinances, construction-to-permanent loans, conventional loans, VA, FHA, and USDA mortgage loans. Lenders need to use the 1003 Form to ensure their mortgage loans align with Fannie Mae and Freddie Mac’s rules and guidelines.
These 4 signs of fraud are some of the biggest red flags when it comes to pre-approved loan scams. Whenever dealing with loan documents and approval procedures, make sure you verify all the details. Mortgage fraud tactics adapt as the real estate industry and authorities work to identify and prevent existing practices. To avoid mortgage scams, stay observant throughout your mortgage process, and question what you don’t understand.
These are some of the things you should do:
- Understand the terms: Read through documents, make sure they’re complete and get clarification on mortgage terms and anything you don’t understand before signing.
- Speak to licensed professionals: Verify the licenses of all the people you work with including loan originators, lenders, lawyers and mortgage loan assistance companies with the NMLS at nmlsconsumeraccess.org.
- Don’t accept unsolicited offers: Mortgage scam perpetrators often seek out vulnerable targets. You should be suspicious of unsolicited loan offers and maintain contact with your Home Loan Expert or mortgage service provider.
Do you have questions, or would you like to submit an application for a qualified pre-approval? Contact me today! Let’s get the process started.
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