Consumers can avoid mortgage scams by rejecting proposals that do not contain options to purchase points or that contain excessive monthly payments, reports Investopedia. Consumers should also avoid lenders who do not disclose how they are paid or mortgages that contain excessive loan costs or prepayment penalties.
Reputable lenders commonly offer home buyers the option of purchasing points that reduce the amount of interest paid over the life of the loan, explains Investopedia. Additionally, a reputable lender carefully scrutinizes an applicant's financial status to determine credit worthiness. Consumers should be wary of any mortgage that requires a monthly payment that exceeds 28 percent of the applicant's gross monthly income.
Consumers should always inquire if the proposed mortgage contains closing costs exceeding 5 percent of the total amount of the loan, states Investopedia. Although some loans less than $150,000 may contain closing costs in excess of 5 percent, larger loans typically vary between 2 and 5 percent. The lender should always clearly disclose all costs to the consumer, and it is advisable that consumers compare the total cost of loans being proposed by multiple lenders. Disreputable lenders may charge more than 5 percent to pay a mortgage off earlier than scheduled, but these penalties are illegal for owner-occupied houses, as of 2015.