First-time buyers: It is your responsibility to be prepared

Last week I addressed the issue of first-time home buyers and the current market. A first-time buyer needs to be ready for homeownership, and being educated in the process is the buyer's responsibility.

If you have decided you are ready to get your first loan to purchase real property or if you are are looking for a loan to refinance an existing mortgage, know that the mortgage market place offers numerous types of loan products. Being knowledgeable about the loan process will help you find the most desirable loan product and avoid the pitfalls of predatory lending. Also, you could contact your Realtor and ask his or her opinion of lenders they have worked with. Who better to give you the names of reputable lenders than someone who works with them on a regular basis?

The Department of Real Estate put out an article discussing how to protect oneself in the loan process. It warns potential borrowers about predatory lending. The term "predatory lending" encompasses a variety of home mortgage lending practices. Predatory lenders often try to pressure consumers into signing loan agreements they cannot afford or simply are not in the consumers' best interest. Often, through the use of false promises and deceptive sales tactics, borrowers are convinced to sign a loan contract before they have had a chance to review the paperwork and do the math to determine whether they can truly afford the loan. In the end, it is the buyer's responsibility, not the lender, to determine whether or not the loan offered is the right one for them.

Predatory loans carry high up-front fees that are added to the balance, decreasing the homeowner's equity. Loan amounts are usually based on the borrower's home equity without consideration of the borrower's ability to make the scheduled payments. When borrowers have trouble repaying the debt, they are often encouraged to refinance the loan into another unaffordable, high-fee loan that rarely provides economic benefit to the consumer. This cycle of high-cost loan refinancing can ultimately deplete the homeowner's equity and result in foreclosure.

Predatory lending practices specifically prohibited by law include:

Flipping — the frequent making of new loans to refinance existing loans,

Packing — the selling of additional products without the borrower's informed consent,

Charging excessive fees.

Homeowners in certain communities, particularly the elderly and minorities, are especially likely to be targets of predatory lending, but almost anyone can fall prey to abusive lending practices. You can protect yourself by knowing what you can afford; choosing a reputable, licensed broker/lender; understanding the loan application and contract; and being aware of commonly-used predatory lending tactics. INFORMED DECISION-MAKING IS YOUR BEST DEFENSE!

Knowing what you can afford is YOUR responsibility — be informed.

"Using the Services of a Mortgage Broker" is published by the California Department of Real Estate. It provides further information about the various aspects of mortgage transactions including the mortgage broker's role, acceptable commissions and fees, definitions of terms, tools for decision-making your rights, what to expect and where to go for help.

Linda Bush is the president of the Lodi Association of Realtors.

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