Buying your first home…

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

2. 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

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

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

5. Fair Lending Laws Exist…. • 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

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

7. Before You Buy • 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 anti-predatory lending law! Developed by NJCA

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

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

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

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

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

14. Predatory Lending Components • 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 • 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 • 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 • First time Homebuyers Beware: • Property flipping • Referral Scams • Liar Loans • Homeowners Beware: • Home improvement Scam • Debt Consolidation Scams • Refinance Loans Developed by NJCA

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

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

20. Alternatives to Risky Financial Activities or while you are repairing your credit… • 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 • 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 • Learn • Avoid • Share info with others • Report • Important numbers: • 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