March 8, 2011
FHA loans are not immune from the attentions of con artists, scammers and fraudsters. The FHA does actively investigate claims of fraud, discrimination or abuse of the FHA loan system, but the borrower is sometimes the first line of defense when it comes to avoiding scams or predatory business practices. New FHA loan applicants are often the most vulnerable because they’re in the process of learning how FHA loans work. Scammers are aware of this and try to use it to their advantage.
That’s one reason why the FHA encourages borrowers to attend home ownership education classes and credit counseling courses offered by HUD approved non-profit agencies. The information a new borrower learns in these classes helps first-time home buyers understand their rights, responsibilities, and the rules of FHA mortgages.
Did you know it’s your right to request a full explanation of loan terms and conditions? You are also expected to shop around for lenders, real estate agents and other housing professionals–you are not required to stay with a lender simply because you filled out an application or other paperwork.
FHA borrowers not only have the right to have a property they wish to purchase inspected, they also have the right to make the purchase of the property conditional on the outcome of that inspection. Borrowers should be well aware of what’s included in a sales agreement when they must spell out such conditions–those conditions must be included in writing in the agreement.
You can’t simply cancel the purchase of a home if the inspection doesn’t turn out properly UNLESS you haven’t signed a contract or have signed one with a “conditional sale” type clause as described above.
The FHA advises borrowers to be leery of anyone in the housing industry trying to guide you to a single lender. Sellers, real estate agents and other industry pros know the law permits the borrower to shop around for the best deal, and no one should impede the borrower from doing just that. The FHA also warns borrowers against signing ANY document with blank spaces.
When put down in black and white like this, these warnings seem fairly simple and obvious. But when borrowers are in the heat of the moment, trying to learn a new vocabulary and working with agents or lenders presenting hard sell or high pressure sales tactics, it can be easy to forget or overlook the basics.
The most important part of the FHA loan process is the borrower’s decision to commit–whether that’s to a particular lender, a particular property, or to close the deal. At no point should the borrower feel they MUST sign on the dotted line. Careful consideration and deliberate actions should be the goal. Never sign or commit in a high-pressure situation. You have the right to think about what you’re about to commit to–and you should definitely exercise your rights.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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