Here are some warning signs:
Sounds too easy. "Guaranteed approval" or "no income verification" regardless of borrower's current employment, credit history, and assets. These claims indicate the lender doesn't care about whether you can afford to make the payments over the long haul.
Excessive fees. Higher lender and/or mortgage broker fees than are typical in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees may be negotiable. It is common for home buyers to pay only 1 percent of the loan amount for prime loans. By contrast, a typical predatory loan may cost 5 percent or more.
Large future costs. High-risk adjustable rate mortgages where the payment rises a lot after the initial interest rate period are seldom appropriate for families who already have had problems repaying other loans. Home buyers should avoid "balloon" payments (a lump sum due at the end of the loan's term).
Closing delays. The lender delays closing, so your commitment on a reasonably priced loan expires.
Over-valued property. Inflated appraisals that allow excessive fees to be included in the loan and result in the borrower owing more to the bank than the home is worth.
Barriers to refinancing. Prepayment penalties that make it hard for a borrower to refinance in order to pay off a high-cost loan by refinancing into a low-cost loan.
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