The VA loan program is perhaps the best cost-saving home loan program available. More information is available about these loans, thanks to the internet. More qualifying veterans and active service members are taking advantage of this lending option than at any time in the past.
Unfortunately, the internet has also given rise to people looking to take advantage of borrowers, and VA loan scams are more prevalent than ever. AARP reports that veterans are twice as likely to be targeted for fraudulent loans as civilians, so if you currently have a VA loan or are interested in applying for one, it’s important to be on the lookout for scams.
Some VA loan scams involve outright swindling a veteran out of money or even their home, and some involve misinformation that causes a borrower to make a poor financial decision. Either way, these scams can easily cost you thousands of dollars if you fall victim to one.
The most significant rule to remember is the classic warning of, “If something seems too good to be true, it probably is.” Here are a few specific hallmarks of a scam:
A promise to let the borrower skip mortgage payments, which is forbidden explicitly for VA-approved loan lenders. A reputable loan officer will never use this as a selling point.
Interest rates that are significantly lower than other providers. If you see an interest rate that’s much lower than any other lender, make sure you’re aware of the length of the loan and ask questions.
Terms that don’t include specific information about the length of the loan, the rate type (whether it’s adjustable or fixed), and points.
A promise to refund any amount of escrow money. An escrow refund depends on how much is in that account at closing, which varies depending on many factors. A lender can never guarantee a certain amount.
If a company asks for money upfront, it’s not legitimate. You will have to pay closing costs for a refinance or for a new loan, but that’s as the name implies; at closing. You never pay anything to start the loan application process.
Beware of unusually pushy salespeople, repeated phone calls after you indicate you aren’t interested in a loan, calls that force you to make a decision quickly before “time runs out,” or an offer to immediately refinance after closing on the mortgage.
A lender contacting you out of the blue to say that your home or your loan was selected for a special program or similar wording.
You receive a call or email offering a loan directly from the VA. The Department of Veteran Affairs (VA) backs these loans, but only banks, credit unions and other lending institutions offer them. The VA will not contact you to offer a home loan.
Of course, not every company that contacts you will offer a scam, but be sure you investigate anyone whom you do not initiate contact.
There are three main types of scams that specifically target VA loans, two of which involve “churning,” or a company enticing a borrower to refinance with little or no benefit. These tactics may not all be fraudulent, but they’re scams in that they are presented as financially attractive but result in a loss or no cost savings to the borrower.
Cash out refinance The most likely common scam involving VA loans centers around a process called a cash-out refinance. During this process, a lender can borrow money against the equity they’ve built in their home, but the mortgage starts over. For example, someone who paid 10 years on their 30-year mortgage will have to pay another 30 years on the cash-out refinance. Aside from being a weak move financially (especially when repeatedly done), this arrangement comes with fees for the refinance. The borrower gets cash in their pocket, but the lender reaps significant and unfair benefits.
Same-rate refinance Getting a lower interest rate is the main appeal of refinancing a mortgage, which leads to a lower monthly payment. However, some companies try to get borrowers to refinance at their same interest rate with a longer term – touting a lower monthly payment. The lender will promote the lower payments as savings; the borrower pays thousands more over the life of the loan.
As an example, let’s say someone has a $250,000 mortgage at 3 percent for 30 years, and he or she made monthly payments of $1,054 for 10 years. In this scenario, they will pay about $379,444 over the life of the loan. If they refinance for the same rate at this point and add on 10 years, their monthly payment becomes $801, but they will pay $414,932 over the life of the loan. Be sure you’re getting a lower interest rate and that you’ll come out ahead in the long run.
Equity skimming Unlike the other two on this list, this scam is fraudulent. In short, it involves a company or individual taking over the title to a person’s home, removing (or skimming) the equity, and then leaving the situation. It works like this: an investor promises to rescue a homeowner who is having trouble making payments and is facing foreclosure. The scam artist promises to buy the property, then take payments from the current owner. The investor refinances the home, pockets the equity money, and leaves town. The previous homeowner is left still facing foreclosure. If you’re having financial trouble and you get approached by a company that claims to be able to help, ignore them. Get in touch with your local or regional VA office.
Often, VA mortgage scams target people who are having trouble making payments. If you can’t make payments on a VA loan, know that you have options available. Even reliable borrowers can run into financial difficulty for legitimate reasons like a layoff or illness. If you see yourself missing a VA loan payment, contact the VA office in your area or your lender immediately to work out a solution. The VA offers a number of delinquency assistance programs.
Worried that you may be in contact with a scammer? The first thing you should do is contact your VA Regional Loan Center. They’ll have information on all reputable companies as well as information on common scams.
You can also do research online yourself. Search for the name of the company you’re dealing with to see what other people have to say about them. If you don’t find much of an online presence and don’t see reviews from real customers, it’s probably best to avoid that company.
If you have been the victim of a potential VA home loan scam or you think someone you’re dealing with could be a scammer, you have a few ways to alert authorities at the Consumer Financial Protection Bureau. You can file a complaint on their website, or you can give them a call at 855-411-2372.
The VA loan program was started to give veterans the opportunity to become homeowners, and it’s been an overwhelming success. Unfortunately, a few unscrupulous companies have entered the scene to generate profit at the expense of veterans and active duty service members.
VA home loan scams have become so bad in recent years that the government has stepped in to try to curb them. In 2018, Senator Thom Tillis introduced the Protecting Veterans from Predatory Lending Act of 2018. This act requires a lender to demonstrate the benefit of a refinance to a customer before the process begins.
Remember that the government does not set VA mortgage rates, you won’t “qualify” for a special rate from the government, and the government doesn’t require any fees except the funding fee at closing. Also, the government will never require a refinance be with your current lender, or any particular lender.
If you feel uncomfortable with a loan, walk away from it. You’re not committed to anything until you sign the closing paperwork. VA loan scams are on the rise, but with due diligence and research on your part, you stay protected.