Spotting Mortgage Scams: Warning Signs Every Homebuyer Should Know

Answer

Mortgage fraud schemes can cost borrowers thousands and derail your homebuying plans. Knowing common tactics and how to verify legitimate lenders helps you stay one step ahead and protect your credit and savings.

Watch for these red flags:

• Up-front fees: Scammers often demand large advance payments—for application “processing,” credit reports or “guaranteed” loans—before providing any service.
• Too-good-to-be-true rates: Promises of rock-bottom interest rates or guaranteed approval with bad credit almost always signal a scam.
• High-pressure tactics: Urgent deadlines (“rate lock ends today!”) push you to sign without reviewing terms or shopping around.
• Unlicensed advisors: Mortgage professionals must register with the Nationwide Multistate Licensing System (NMLS). Anyone without an NMLS ID or state license could be operating illegally.
• Misleading paperwork: Watch for hidden fees buried in closing documents or altered numbers on the loan estimate.

Steps to verify your lender:

• Check the lender’s status on the NMLS Consumer Access site for licensing and complaint history.
• Compare the Loan Estimate and Closing Disclosure to ensure APR, fees and term lengths match.
• Read reviews on trusted platforms (BBB, Zillow, Google) and ask for references from recent clients.
• Get everything in writing—loan terms, fees and any promises—and review them with a mortgage counselor or attorney.
• Consult HUD-approved housing counselors at ConsumerFinance.gov—many offer free guidance.

Common schemes include “loan flipping” (repeated refinancing that adds hidden fees), bait-and-switch rate increases at closing, and identity theft through phishing emails demanding personal information. Staying vigilant and asking the right questions prevents these costly traps.

Ultimately, it’s advisable to verify lender credentials, compare multiple offers and consult a licensed mortgage professional or housing counselor before signing. Buyers are recommended to stay informed and trust their instincts—if something feels off, pause and seek expert advice.