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What to Watch Out For

People with poor credit get financed for homes on a regular basis, and there are many reputable companies that can provide you with a mortgage. However, there are a few things to look out for when treading the waters of bad credit mortgages as there are a lot of sharks out there.

Avoid selecting a lender that requires you to pay substantial upfront fees just to apply. While covering the, typically minimal, cost of running a credit report may be reasonable, some lenders claim to be able to find financing for anyone, charge a fee of several hundreds of dollars, and then do not come through with the financing for you.

It’s very likely you will be required to purchase private mortgage insurance, which may add $40 to $120 a month to your mortgage payment. Once you reach an equity level of 20 percent, you should no longer have to carry this insurance, but your lender will not always inform you of this.

Also, if your mortgage insurance is going to be substantially higher, you should receive a notice of adverse action--although this doesn’t always happen, some borrowers have been surprised at the closing table with a huge unexpected mortgage insurance payment. Insist on knowing ahead of time what to expect.

Home equity loan fraud is rampant, as well. This consists of con artists trying to convince an unsuspecting homeowner to sign a document in order to get home repairs, or avoid foreclosure. The document, of course, contains terms that are designed to be impossible to meet, and the victim loses the family home. The con may convince the victim to sign a blank form, which later is filled in with unreasonable terms, or pressure the victim to agreeing that they understand everything, and signing immediately.

Under the federal Truth in Lending Act, you may cancel a home equity loan for any reason within three days of signing.