Understanding Loan Flipping in Real Estate and How to Protect Yourself

Loan flipping is a process in which lenders frequently persuade borrowers or homeowners to refinance their homes. That means the lender will provoke the other party to lend more and more money.

This procedure only results in a financial burden and is one of the biggest dilemmas for any homeowner. 

The homeowner is left with a greater loan amount than before, which is trouble for the borrower. The borrower can’t possibly make up for the loan payments, during which the lender charges points for every payment.

Most people who fall into this trap are senior citizens and people who have zero knowledge of borrowing. People giving out the loan for a mortgage are always on the lookout for prey to feast on. They present “better” options to the borrowers and trick them into paying for more. 

Fortunately, these lenders can be held accountable by the borrowers. If you have experienced some unusual activity or your lender has convinced you to refinance your loan, along with unjust terms and excessive charges, it is high time you contact an attorney or lawyer. Or, you can read this article and learn how to avoid falling into one of these traps.

Understanding Loan Flipping in Real Estate and How to Protect Yourself

Understanding Loan Flipping

The definition of loan flipping tells us that it is a scam activity in real estate. It occurs when the home lenders persuade or convinces the borrower of new terms for the loan at unreasonably higher costs and added expenses. 

The lender might use tactics like promising the borrower lower monthly installments for the loan. However, the borrower ends up with unreasonably stacked prices that become almost impossible to pay off and finish their real estate equity.

Loan flipping may look like a jackpot initially, but the additional interest and added fees put the borrowers in situations they can’t get out of easily. Also, Loan flipping provides the borrower with a couple of thousand dollars, but they dissolve quickly, leaving the borrower in a mess. The process of getting a loan for a mortgage should always be done through a trustable party.

Who Are Victims of Loan Flipping?

Lenders cannot prey on everyone and gain benefits from loan flipping. They choose groups who are most vulnerable to fall into this trap and exploit them.

Senior Citizens

Senior citizens are the most vulnerable to this reckless scam by lenders. They have the greatest equity in real estate and thus are common targets for lenders. Senior people do not know how things work in the real estate world. Hence, their chances of getting scammed are higher than any other group.

Less Educated

People without knowledge or education in real estate are also prone to these predatory lenders. They are at an increased risk of falling into this trap and agreeing to unjustifiable payments.

Recently Moved People

Minorities or people who have recently moved into the state also have a hard time with these lenders. Minorities have no know-how of what goes around and who to contact if someone is dealing with them unfairly. Hence, they are easy targets for predatory lenders to pounce on.

What are Balloon Payments?

Balloon payments are one of the most serious and dangerous circumstances attached to loan flipping. If you accept balloon payments, get ready to face the dire circumstances. These payments are usually found in the contract fine print. 

Balloon payments are charged by sneaky lenders who charge payments at low rates at first but then include huge amounts as lump-sum payments. That usually happens after a couple of years. As the loan period starts to come to an end, lenders persuade the borrowers to renew the loan agreements and refinance their homes again.

How to Escape Predatory Lenders

Spotting predatory lenders is not as tricky as it seems. They have common tactics that lure borrowers into their traps, but escaping their tricks can be easier. If a lender keeps trying to contact you frequently via any medium, that is a red flag. 

Lenders do use marketing techniques, but they’re never running after borrowers or aggressively approaching them by bombarding them with calls or emails. Therefore, it is always better to contact local lenders and work with them.

How to Stay Away from Loan Flipping

Now that you know what loan flipping is and how predatory lenders use it to their advantage, let’s look at some measures you can take to protect yourself from it.

How to Stay Away from Loan Flipping​

Keep Your Budget in Mind

Keep your budget in mind when you decide on a house. Most of us have the habit of spending more than we earn and getting stuck in the rat race of trying to meet payments. However, when you’re deciding to buy a house, be careful not to settle on options that may seem advantageous at first but can cost you more in the long run.

Contact Tested Lenders

Get in touch with lenders who you know, and you’ve worked with before. Find someone with a reputation and an authentic license to help you find the right type of loan for you.

Learn More

Educate yourself on how the real estate market works and what frequent problems people face. Learn about loan payments, contracts, and applications. The more your knowledge is, the safer you will be. Knowing more will help you spot red flags easily and track down suspicious lenders.

General Laws for Loan Flipping

There are laws at each state, federal, and local level to protect borrowers from the scam of loan flipping. These laws help prevent and minimize the effects of this activity. For instance, TILA, abbreviated as The Truth in Lending Act, abides the lender to disclose all information to the borrower before signing an agreement.

Work With the Right People

Working with the right people if you find yourself in a situation like this is helpful. Taking up additional loans to pay off the burdening loans is a messy business. Hence, selling your house is the best option when stuck in a position like this. 

At Top Cash Offer In USA, our services help you get out of this quickly. We buy houses as they are, with no renovations or restoration required. Our prices are market competitive and help you through this dire situation. Reach out to us now to get a no-obligation cash offer and find out how selling your house instead of taking an additional loan is a better option.