Homebuyers and homeowners are targets for a variety of rip-offs and scams. It helps to stay wary and informed. A useful book to ask for in your library is Easy Money, by Charles R. Whitlock (New York: Kensington Books, 1994. $18.95 US), which describes con games and schemes of all kinds. Credit "Doctors" You probably know that your credit history affects your ability to obtain mortgage credit. You also probably are aware that you have the right to obtain a copy of your credit report and to challenge incorrect information. What the "credit doctors" suggest is that they can use this process to ensure that your credit file will show up as clean when you apply for a mortgage. Credit "doctors" are a rip-off because (a) you probably do not need them and (b) if your credit history truly is bad they cannot help you. They are vultures out to prey on your fear of not obtaining credit. One reason that you do not need the credit "doctor" is that your credit history does not have to be squeaky clean to obtain a mortgage loan. A standard mortgage industry joke is the "30-day late from Sears." For a while, Sears reporting was known to be so unreliable that the joke was if your report did not show a late payment on your Sears account then there must be something wrong with you. Regardless of whether you have had problems with a Sears account or another account, you do not need perfectly clean credit history to obtain a mortgage. In very rare instances, your credit file may get polluted with bad information from someone else's credit file. You can learn about this by obtaining a copy of your credit report. If you are turned down for a mortgage loan because of your credit history, ask your lender for a copy of the credit report. If it is clearly a case of a messed-up file, talk to your lender about getting it straightened out. The lender wants to make the loan, and they will be glad to help without charging you the "credit doctor" fee. Finally, if your credit file truly reflects a history of lapses on your part, the "credit doctor" may only make things worse. For example, if you fire off a series of disputes to the credit reporting agencies, these will be resolved quickly (because the law requires quick resolution to protect consumers). Because the timing of dispute resolution may vary across agencies, mortgage lenders who obtain multiple credit reports (and nearly all of them do so) will see conflicting reports, which is a red flag that forces them to scrutinize your credit more carefully. A particularly dangerous suggestion that I've seen posted to newsgroups is that you can clear up your credit by obtaining a new social security number. Do not pay a credit "doctor" to do this for you. First, obtaining a social security number for such a purpose is illegal. Second, it does not cost you anything to apply for a new social security number yourself, so there is no reason to pay someone else to do it for you. Third, a new social security number will not help you with your credit. Some credit repository algorithms will link your new number to your old number based on your name and address (they need this capability because sometimes social security numbers get mis-typed). And if they don't, it's even worse. If you are say, 32 years old, and have a credit file that only goes back 6 months, you may have a more difficult time getting a mortgage than if you had a credit file with a couple of bad trade lines in it. Length of credit history is one of the most powerful indicators of credit quality, so having a "fresh" credit file is nothing but a big red flag. Schemes Before You Buy When you buy a house, you should have an attorney of your choice working for you. If you do not want to spend money for an attorney, then study real estate law carefully. Start with Pollain's book. An attorney should help you avoid the schemes below. Straw Buyer The idea here is to have someone with better qualifications than the homebuyer obtain the mortgage for the house. If you are asked to be a straw buyer in a transaction, you will be liable for the mortgage. You also may be subject to criminal prosecution. Any fee you might get for lending your name to the transaction is not worth these risks. Closing Rip-Offs Lenders have been known to quote a low interest rate or fee when you apply for a loan, and then wait until settlement to "surprise" you with a higher rate or additional fees. If a large lender with a reputation at stake does this, call their top executives. Kickback Fees Your real estate agent may be very happy to take care of every aspect of your transaction--finding a lender, a settlement attorney, etc. While this may make you feel relieved, you should check into the prices being charged and compare with those that you can obtain on your own. The agent could be motivated by kickbacks from the other parties to the transaction. Never believe somebody who says "If you apply for a loan yourself, you'll get turned down. I can get you approved." Take that to mean, "I don't want you to apply for a loan yourself, because I'll lose my kickback." Fees For Nothing Many scam artists will promise people with bad credit that they can obtain mortgage loans. The scam artist charges an application fee, makes all sorts of "guarantees" that the loan will go through, and then finds a reason to back away from the deal. They prey on your fear of being denied credit. My advice is to forget your fears and apply for a loan with a reputable institution. Schemes After You Buy Servicing Scams Once you have a mortgage, someone may write you a letter giving a new address to send payments. Usually, this is a legitimate transfer of servicing. However, before you send your payment to the new address, always call your old lender to confirm the transfer. People have been known to send bogus letters, and then you end up sending your money to someone who is just ripping you off. Another servicing scam is when someone offers to save you money by converting you to a biweekly mortgage. Supposedly, you pay them every two weeks, they send the money to the lender, and you save money because the loan pays off more quickly. This typically is a rip-off, because the intermediary either charges an exorbitant fee or absconds with your payments. If you want to save on interest costs on your mortgage, you always can send in extra principal payments directly to your mortgage lender, particularly in a month where you get three paychecks because they come biweekly. Foreclosure "Help" If you fall behind in your loan payments, someone may offer to "help" you avoid foreclosure--for a fee. This is likely to be a rip-off. Your lender is highly motivated to avoid foreclosure and should be able to provide you with just about all the appropriate assistance you would need. Article: Reality And Wish Lists Article: Ontario New Home Warranty Program Article: Tips On Finding The Right House