As Realtors in the San Diego County Market, Karen Mattonen and her husband Brad – HomesinSDCounty – Coldwell Banker Realty, have seen many aspiring homeowners fall for seemingly attractive offers of 100% financing with zero percent interest, especially those with low credit scores. While it may seem like a dream come true, such offers often come with potential high risks that buyers should be aware of before making any decisions.
Some companies promise you a loan or credit card regardless of your credit history. But they want you to pay a “processing” or other fee first. Those are scams. Learn the telltale signs.
So, First and foremost, it’s always important to understand that such offers are not widely available in the real estate market for a reason. In fact, a legitimate lender will require at least a minimum credit score and down payment before approving a loan. Offers of 100% financing with zero percent interest are usually made by private lenders who are not regulated by the government, making them more susceptible to scams.
One of the biggest red flags with these types of offers is the lack of transparency about the terms and conditions of the loan. Scammers often use complex and confusing loan documents to hide high fees and interest rates, which can leave the borrower in a worse financial situation than before. Buyers should always read and understand all loan documents before signing anything, and seek the advice of a trusted financial advisor or real estate agent.
Another risk of 100% financing with zero percent interest is the potential for hidden fees and costs that are not immediately apparent. These can include prepayment penalties, balloon payments, and other charges that can add up quickly over time. Buyers should also be aware that interest rates may increase after a certain period, which can cause monthly payments to skyrocket and make the loan unaffordable.
Furthermore, low credit scores often indicate a higher risk of defaulting on a loan, which can lead to foreclosure and the loss of the home. Private lenders may require the borrower to put up collateral, such as their car or other assets, to secure the loan. This puts the borrower at a higher risk of losing not only their home, but also other valuable possessions.
Offers of 100% financing with zero percent interest may seem to potential Home Buyers with Low Credit Scores like an attractive option, but they often come with potential high risks that should not be ignored. Buyers should always do their due diligence and seek the advice of trusted professionals before making any financial decisions. Remember, if it sounds too good to be true, it probably is.
Common predatory lending practices
- Equity Stripping
The lender makes a loan based upon the equity in your home, whether or not you can make the payments. If you cannot make payments, you could lose your home through foreclosure. - Bait-and-switch schemes
The lender may promise one type of loan or interest rate but without good reason, give you a different one. Sometimes a higher (and unaffordable) interest rate doesn’t kick in until months after you have begun to pay on your loan. - Loan Flipping
A lender refinances your loan with a new long-term, high cost loan. Each time the lender “flips” the existing loan, you must pay points and assorted fees. - Packing
You receive a loan that contains charges for services you did not request or need. “Packing” most often involves making the borrower believe that credit insurance must be purchased and financed into the loan in order to qualify. - Hidden Balloon Payments
You believe that you have applied for a low rate loan requiring low monthly payments only to learn at closing that it is a short-term loan that you will have to refinance within a few years.
So If you are still considering and unsure whether or not a 100% financing with zero percent interest offer is legitimate, it is best to consult with a qualified real estate agent or Legitimate financial advisor, they can help you understand your options and make sure that you’re making a wise financial decision.
- Beware of high interest rates and fees. Legitimate 100% financing companies will charge competitive interest rates and fees. If you’re offered a loan with an interest rate that seems too good to be true, it probably is.
- Make sure the company is licensed and insured. All mortgage lenders are required to be licensed and insured. You can check the status of a lender with the National Mortgage Licensing System and Registry (NMLS).
- Read the fine print. Before you sign any paperwork, make sure you read and understand all of the terms and conditions. This includes the interest rate, fees, and repayment terms.
Here are some additional things to keep in mind if you are till considering 100% financing:
- You may not qualify for a 100% financing loan. Lenders will look at your credit score, income, and debt-to-income ratio to determine if you qualify for a loan. If you have bad credit or a low income, you may not be able to qualify for a 100% financing loan.
- You may have to pay PMI. Private mortgage insurance (PMI) is a type of insurance that lenders require borrowers to pay if they don’t have a 20% down payment. PMI can add hundreds of dollars to your monthly mortgage payment.
- You may not be able to afford the monthly payments. Even if you qualify for a 100% financing loan, you need to make sure that you can afford the monthly payments. If you’re not sure if you can afford the payments, use a mortgage calculator to estimate your monthly payment.
If you’re considering 100% financing, it’s important to weigh the pros and cons carefully. There are some potential benefits to 100% financing, such as being able to buy a home sooner or avoiding PMI. However, there are also some potential drawbacks, such as high interest rates and fees. It’s important to do your research and make sure that 100% financing is the right choice for you
What to do if it happens to you
- Contact your bank or wire-transfer company immediately. Ask for a wire recall. Reporting the error as soon as possible can increase the likelihood that you’ll be able to recover your money.
- File a complaint with the FBI. Contact the FBI’s Internet Crime Complaint Center at www.ic3.gov .
While it can be easy to think you’ll never fall for a scam of this nature, the reality is that it’s becoming more and more common, and the results can be disastrous for eager homeowners. By being mindful and taking a few important steps ahead of your closing, you can protect yourself and your loved ones.
To learn more about the closing process, including how to prepare for your closing and common pitfalls to avoid, check out the Consumer’s Finance Bureau Mortgage Closing Checklist . For information and resources for the each stage of the home-buying journey, visit the Consumer’s Finance Bureau’s Buying a House tool.
The resources on mortgage closing scams are part of the Consumer Financial Protection Bureau’s work to protect consumers from unfair, deceptive, or abusive practices. We arm people with the information, steps, and tools that they need to make smart financial decisions.
Karen and Brad Mattonen of HomesinSDCounty are Realtors in San Diego County who are passionate about helping their clients find the perfect home. They have a wealth of experience in the industry and are committed to providing their clients with the best possible service. If you’re thinking about buying a home, contact Karen and Brad today to learn more about 100% financing and other financing option
As a Coldwell Banker affiliated agent, I have the tools and resources to help you:
- Set the right price for your home
- Locate qualified prospective buyers
- Shorten the amount of time your home is on the market
- Sell your home for the highest possible price
Don’t go it alone. Leave the sale and marketing of your home to to the Expert Team at www.homesinSDCounty.com and achieve the results you deserve. Give us a call today so we can get started.
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