Loan officers are supposed to help borrowers in the application process. Unfortunately, there are mortgage lenders who take advantage of unsuspecting borrowers by tying them to an unmanageable mortgage term, high interest rates, or exorbitant closing costs. Although it’s not always easy to detect bad loan officers, there are signs you can look out for to smell danger from afar.
Buying a house is a daunting task — you need to determine how much home you can afford, decide the most suitable interest rate, find a real estate agent, and start house hunting. But the most intimidating aspect of buying a home is finding a lender willing to finance your purchase.
Financing is a big part of the homebuying process. Whatever fees you agree to at closing will be the terms you abide by throughout the loan repayment period. Moreover, unless you refinance your loan, whoever you choose to be your mortgage lender could be in your life throughout your mortgage repayment period.
For these reasons, it’s important you find a mortgage lender with your best interest at heart. In this article, we’ll talk about red flags to watch out for in your lender.
What are mortgage loan officers?
Mortgage loan officers, also known as mortgage originators, are representatives of financial institutions (banks, credit unions, mortgage lenders, and so on). Their job is to guide you through the complicated and stressful mortgage process. As your first point of contact in the lending, a mortgage loan originator serves as the communication bridge between you and the institution.
To put it into perspective, loan officers are like salespeople in a car dealership. They’re supposed to be knowledgeable about their dealership offering, interested in what you want, and willing to sell you a solution to your problem.
Like salespeople, loan officers must have an extensive understanding of the mortgage industry and their firm’s mortgage requirements. Ideally, they also have your best interest at heart — at all times. And they should be willing to guide you through the lending process.
Signs to watch out for in a loan originator
Now, let’s discuss some signs and red flags you should watch out for in a lender.
1. The lender has bad customer reviews
Testimonials and reviews from previous clients are evidence of a loan originator’s credibility. By asking for work references or reading reviews on independent review sites — like SuperMoney, Yelp, and Google — you’ll know if the mortgage lender has your best interest at heart.
Review sites let you know what it will probably be like dealing with your prospective mortgage lender. These websites provide reviews from past clients about their experiences working with the lending officer.
For example, if you’d like to know more about a lender, just search the company’s name on SuperMoney and the company’s letter grading system will give you an insight into the loan officer’s credibility.
2. The loan term sounds too good to be true
Loan officers are sometimes slick salespeople who can make the worst of deals sound enticing, so exercise caution when negotiating the terms of your loan.
When the loan offer seems a little too good to be true, it might be — especially if the lender doesn’t seem to care about your loan history and credit scores. Most of these attractive loan offers come with strings attached, such as a higher interest rate, excessive closing costs, or other unfavorable terms.
If you feel like the lender’s promises are unreasonable, trust your instinct. Read the document carefully, and ask detailed questions about the loan terms. Know whether it’s a fixed-rate loan or variable-rate loan, what the closing fees are, and the details of the loan program and conditions.
Remember, all that glitters is not gold.
3. The loan officer dodges your questions
As the point of contact between you and the financial institution, the primary duty of a lender is to guide you through the complex and stressful process of getting a home loan. That means they must be willing and ready to answer your questions, no matter how numerous they may be.
If your loan officer dodges your questions or seems confused when you ask for clarification on any part of the process, that’s a red flag that they’re not the best person to help you. You’ll likely be better off finding another mortgage lender.
4. The loan officer pressures you to act immediately
Mortgage lenders with your best interest at heart will understand that buying a home is a huge financial decision that requires a lot of careful thought. Instead of pressuring you to sign on the dotted line, the broker should encourage you to read the fine print and take your time before making your decision.
When applying for a mortgage, you’re not required to fill out and submit the application form immediately — in fact, you shouldn’t. Check all the details first: fees, monthly payment, refinancing terms, interest rates, etc. Only shady loan officers will want you to sign the paperwork without reading the fine print.
So if the loan officer keeps rushing you through the mortgage application process, it likely means they have an ulterior motive that could be detrimental to your financial health. Just like the mortgage broker who helps you find the most suitable loan offer, mortgage lenders are supposed to help you, not hurt you!
5. The lender encourages you to commit mortgage fraud
If a mortgage officer encourages you to lie on your mortgage application, they are pushing you to commit mortgage fraud. According to the Federal Bureau of Investigation (FBI), mortgage fraud is a felony that can get you slapped with a heavy penalty or even jail time.
You should never lie about your income and employment when applying for a mortgage, nor should you exaggerate your finances to qualify for more than you can afford. These lies will catch up with you in the future, and it won’t be pretty when they do.
In short, if the lender’s agent encourages you to lie on your application, suspend your transaction immediately.
6. The mortgage officer delays the process
While it’s true that you shouldn’t be rushed through the application process, that doesn’t mean it should take forever to get your loan approved.
It takes three days at most to get a preapproval letter, while a typical mortgage loan takes about four to eight weeks to process. If your loan officer takes longer than normal to approve your loan, you should check the legitimacy of the lender — and maybe find a new one.
What should I not tell a loan officer?
Never lie to a mortgage lender.
A mortgage loan application involves a thorough examination and verification of your financial background. So when you’re applying for a loan, give your loan agent all the information they need about your finances — they’ll know if you’re telling the truth. Don’t worry if your finances aren’t perfect; they may be able to help you out.
Will a mortgage lender contact my employer?
Yes, a mortgage lender will contact your employer for employment and salary verification as part of the underwriting process.
Can mortgage lenders be shady?
Yes! Some unscrupulous lenders, also referred to as predatory lenders, prey on naive and uninformed borrowers. Their goal is to sell you unnecessarily expensive loans that benefit them financially.
Can a lender pull a mortgage offer?
Yes. A mortgage lender reserves the right to withdraw their mortgage offers when they detect suspicious activity during the mortgage application.
Other reasons that a lender may pull a mortgage offer include failing a credit check, mortgage offer expiration, and property issues.
- Unlike mortgage brokers, who are independent agents, mortgage loan officers are the face of a financial institution. They are the communication bridge between the lender and the borrower.
- Good loan officers will have your best interest at heart and patiently walk you through the application process.
- When applying for a mortgage, trust your instinct. Be wary of terms that sound too good to be true. Don’t fall for sugarcoated offers with shady fine print.
- Shop around for the best loan offers, terms, and rates. This research will serve as a guardrail against bad loan officers trying to trick you into predatory loans.
View Article Sources
- Financial Institution/Mortgage Fraud – Federal Bureau of Investigation (FBI)
- Predatory Lending Warning Signs – State of New Jersey
- 8 Signs of Predatory Mortgage Lending – Center for Responsible Lending (CRL)