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Refinancing scams are big news lately, and for good reason. If you are considering refinancing your home, I urge you to read this article in its entirety. It might save you tens of thousands of dollars in the long run. 

I used to work for a major, US direct lender who specialized in home-loan refinancing. This corporation taught its loan representatives how to manipulate customers into agreeing to loans that were not in the borrower’s best interest. Although we were taught many methods of psychologically coercing customers into signing loan documents, this article will only discuss one of those methods.

Before I discuss this tactic, you should realize that when a lender evaluates your loan application, they are primarily looking at three things: 

1)         FICO Score

2)         Mortgage-related late payments

3)         Bankruptcies

Credit-card payment history, car-payment history, student loans, collections, charge-offs, and pretty much any type of credit problem that is not directly related to a mortgage is irrelevant to getting your loan approved. Why are these credit issues irrelevant? Because that is what the FICO score represents. Your FICO score is a numerical value that takes into consideration all of these factors and lumps them into a number that will range from 500 to 800+.

Mortgage-related late payments will typically increase your interest rate. Bankruptcies will also increase your interest rate or (depending upon the lender) make you “un-lendable”. 

Here is one shady-loan-officer tactic that you should be aware of:

Your loan officer may want to talk with you about your credit history. He or she will ask you specific questions regarding credit-card late payments or otherwise non-mortgage related issues on your credit report. Your loan officer will ask that you explain yourself and provide a valid reason why you were late on those payments.

How is this manipulative?

For starters, those credit issues are irrelevant to your loan approval. Your loan officer should not be discussing them. By asking about your credit history and requesting an explanation, your loan officer is accomplishing three things:

1)         Making you feel insecure about your credit history so that you will be less likely to request a quote from another lender

2)         Forcing you to “open up” about your personal life; this will help develop a stronger relationship between the two of you

3)         Make you feel more appreciative of the loan that your loan officer offers you

The more battered your credit history, the more ammunition a ruthless loan officer will have to use against you and try to manipulate you into accepting a loan that is not in your best interest.

Remember, the majority of loan officers know exactly what type of loan you are approved for the moment they pull your credit. There is absolutely no need for them to delve into your past.

If you experience this type of tactic from your loan officer, I strongly suggest you find a more reputable company to work with.