Whenever a real estate market heats up, real estate loan scams also rise.
Here are three common real estate loan scams to watch out for if you’re buying – or selling – real estate.
Now, seller financing in and of itself isn’t a real estate loan scam. But, this method of buying and selling real estate can be, if you’re not careful.
For buyers, seller financing can turn into a real estate loan scam if you pay the seller directly. To protect yourself, always go through a independent third party such as an escrow company or attorney. They will track payments received, the loan balance, and money disbursed to the seller.
For sellers, always remember that you are the bank, since you are carrying the note. Sneaky buyers can turn seller financing into a real estate loan scam by providing you with bad credit information or selling the property to someone else without your knowledge.
Lease purchasing – real estate can also turn into a type of loan scam if you’re not careful to have everything in writing. Also be sure to have written in your lease purchase contract what dollar amount or percentage of payment is applied toward the purchase price of the property.
Remember, a lease purchase agreement is different from a lease purchase option. With an option, the tenant/buyer has the option to purchase at a predetermined price, but doesn’t have to.
Interest Only Mortgage As Real Estate Loan Scams
Using an interest only mortgage to buy real estate can also end up being a real estate loan scam if you’re not careful.
With an interest only mortgage, payments by the buyer only go toward interest and not principle.
In a real estate market where prices keep rising that’s OK. But if the market suddenly drops, buyers can quickly find themselves upside down with negative equity on the property.