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Avoiding Bad Loans

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By : Frank Smith    99 or more times read
There are more homes in foreclosure now than ever before. Many people got in trouble when they took on too much debt or bought houses that were too expensive. Others lost their jobs and income and were unable to keep up on their mortgage payments. However, some got into trouble by getting into a bad loan. Sometime the buyer did not do their homework or check the fine print, and sometime it was because they were the victim of predatory lenders. These are the situations potential home buyers should be aware of to avoid getting bad mortgage loan.

Too Good to be True
Many people fell victim to loans that were in reality too good to be true. The lender may have showed them all kinds of stats or tables that made the loan look good. In reality many of these loans had hidden fees that the buyer overlooked. Many buyers took on loans that used up all their income. They may have planned on a certain monthly mortgage payment that didn’t include the extra fees. When these fees were added on they could no longer afford the monthly mortgage. Some developers advertised homes that were “cheaper than rent” and when buyers came in they were shown the low monthly payments for the homes. However, if they read the complete contract they might have found all kinds of required community and association fees that soon pushed the monthly payment well above what they were original told. Many houses currently in foreclosures are part of these new community developments that advertised low monthly payments but in reality had high add-on fees.

Unfair Terms
Some homebuyers got into trouble when they didn’t meet certain terms in their loan agreement. This is often in the form of balloon payments. Adjustable loans are not new. Many people have successfully bought houses with these loans that start off with small monthly mortgage payments that increase after certain amount of years, usually three or five.

The problem is that some adjustable loans in the past few years got out of hand. It was a combination of lenders giving loans to unqualified buyers, and buyers buying more home than they could realistically afford. Lenders might have assured the buyers that they would have no problem meeting the new monthly payments. However, some of these loans took drastic leaps and in some cases people were faced with monthly mortgage payments that were unattainable even if they still were making a good income.

In some cases, certain groups were preyed upon, such as older people, and they were lured into refinancing mortgages that soon got out of hand. They may have spent decades faithfully paying a mortgage and then lost a home because of a bad refinancing loan.

While it is hard to protect all buyers who get in over their head or do not read their contracts, many state and local governments are taking steps to protect consumers from bad loans. This includes educating the public and keeping a watchful look at lenders.

Bad home loans have hurt many individuals and communities, and it is important for every potential buyer to take steps and avoid bad loans.

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