Buying your first home Avoiding Financial Frauds Developed

Buying your first home… Avoiding Financial Frauds Developed by NJCA 1

Acknowledgment The work that provided the basis for this presentation was supported by funding under a grant with the U. S. Department of Housing & Urban Development. Developed by NJCA 2

Overview Understanding: n The state and federal laws that support fair housing and protect consumers n Before you buy n The buying process n Types of mortgage loans n Risks of subprime loans n Predatory mortgage lenders n Other risky financial activities Developed by NJCA 3

The American Dream n n Owning a home Largest asset Largest investment Financed with loan/ mortgage Developed by NJCA 4

Fair Lending Laws Exist…. n n n Fair Housing Act Anti-predatory lending laws ( e. g. NJ Homeownership Security Act) Community Reinvestment Act Equal Credit Opportunity Act Home Mortgage Disclosure (HMDA) Act Truth and Lending Act Developed by NJCA 5

The Fair Housing Act Prohibits discrimination against a prospective tenant or homebuyer due to: n Race or Color n National Origin n Religion n Familial Status (have children under 18 or are pregnant) n Gender n Disability IF you feel your rights have been violated contact HUD or a fair housing agency (NJCA) Developed by NJCA 6

Before You Buy n n n Get help – seek HUD-certified counseling Check your credit Determine monthly payment Set your price range Consider possible lenders – Shopping for a Mortgage Loan Know your rights under NJ’s new antipredatory lending law! Developed by NJCA 7

Buying Process n Financing your home: n n Mortgage Broker, Banker, Solicitor, Originator Credit review n n Mortgage Application Do I need a lawyer? n n Purchase agreement Inspection and appraisal Title search Closing Developed by NJCA 8

Commonly Used Mortgage Terms n n Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate Developed by NJCA 10

Shopping for a Mortgage n n Prequalify/Preapproval Application Costs and closing fees Know the Lender Types of Loans n n n Prime Subprime Predatory Developed by NJCA 11

Prime Loan Programs n n n Conventional Government program (VA, FHA, Fannie Mae) CRA (below market) n n Lower interest rate No points, no PMI Low application fee May include closing cost assistance Developed by NJCA 12

Subprime loans n n n Higher interest rate, points, fees Often offered by mortgage companies Greater credit risk Advertised as last option Higher default rates 20% of all Mortgages in 2006 were Subprime Developed by NJCA 13

Types of Subprime Mortgages n n n The difference between fixed vs. adjustable rate mortgages (ARMs) 80 – 20 Mortgages Adjustable Rates – ARMS n n n 2 -28, 3 -37, 5 -25 Hybrid (30/5/5, 15/3/3, 80/20 s) Pick-a-payment (optional ARM) Negative Amortization Wraparound Interest only Developed by NJCA 14

Predatory Lending Components n n n High Pressure Sales or Deceptive Sales Tactics Preys on Lack of Information or lack of Credit Confidence Abuses Lending and Credit Practices Lending Not Beneficial to Homeowner – the loan should be appropriate for the borrower Developed by NJCA 15

Targets n n n n People of Color Seniors Low-income individuals Non-English speaking/reading Residents in urban or rural areas People with poor credit Homeowners who are in financial crisis Developed by NJCA 16

Predatory Lending Results in n n n Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit Developed by NJCA 17

Types of Predatory Scams n First time Homebuyers Beware: n n Property flipping Referral Scams Liar Loans Homeowners Beware: n n n Home improvement Scam Debt Consolidation Scams Refinance Loans Developed by NJCA 18

Predatory Advertising n n No money down! When everyone says no, we say yes! Credit problems? No problem! No one refused! Developed by NJCA 19

Other Risky Financial Activities n n Savings Club & Investment schemes Illegal Lotteries or drawings Pawn Shops Rent-to-Own Stores n n n Developed by NJCA Payday loans Auto title loans Notario Publicos Loan Sharks Rapid Refund Schemes 20

Alternatives to Risky Financial Activities or while you are repairing your credit… n n n n Budget - Set aside $ each week/month to save Sign agreements with all people in a savings or investment club Don’t play the lottery- the odds are slim; Buy 1 lottery ticket Don’t sell anything you don’t want to lose at a pawn shop Sell and buy items at a garage sale or with classified ads Don’t go to a rent-to-own shop - save up until you can afford to purchase. Contact creditors & ask for more time to pay your bills Use overdraft protection for your checking account Compare & use credit options such as credit cards or a cash advance Find a qualified lawyer through Legal Services or bar association Use free tax prep provided by IRS & local nonprofits & get earned income tax credit Borrow money from family or friends if it’s an emergency Contact HUD-certified counseling agency to help with home ownership Developed by NJCA 21

Protect Yourself n n n n Shop around Be sure Lender or Contractor is Licensed NJCA loan counseling Read contract/keep signed & dated copy Don’t sign documents with blank lines Reputable well established Get your own home inspection and attorney Developed by NJCA 22

Do your part n n n Learn Avoid Share info with others Report Important numbers: n n n NJCA 973 -643 -8800 or njcitizenaction. org DOBI 800 -446 -7467 NJ Division Consumer Affairs 800 -242 -5846 HUD 973 622 -7900 or hud. gov Legal Services of NJ 1 -888 -LSNJ-LAW Developed by NJCA 23