Home loan offers that sound too good to be true

As a Veteran or service member, your VA home loan is one of the most powerful benefits you’ve earned. If you have a VA home loan, you have probably received unsolicited offers to refinance your mortgage that may sound too good to be true.

Many of these solicitations claim:

• Skipped mortgage payments.
• Escrow refunds.
• Extremely low interest rates.
• Thousands of dollars in cash back.
• No out-of-pocket costs.
• Repeated refinancing with no waiting period.
• Guaranteed approval regardless of credit score.

The solicitations may appear to be from trustworthy organizations or even VA. Some of these solicitations may also look like it’s from your mortgage servicing company (the company you send your monthly mortgage payment to), a common tactic since borrowers are more likely to act if they believe a solicitation came from their current mortgage company. Here are some red flags to watch out for.

Offers to skip mortgage payments

VA prohibits a lender from advertising the skipping of payments as a means of obtaining cash in a VA Interest Rate Reduction Refinancing Loan (IRRRL). In this scenario, the borrower is not skipping any payments. The principal and interest owed between the date the previous loan was paid off and the date the new loan begins will be carried over into the new loan, which will incur interest and increase your new loan balance.

Offers to receive an escrow refund

Lenders may promise that you will receive a certain amount from your escrow account (a secure holding place for money used to manage payments for your property taxes and homeowners insurance); however, the “refund” is the amount left in your account at the time of loan closing, which may be much less than the amount you were promised.

Some may have problems with new escrow accounts and have had to make higher monthly mortgage payments to cover an escrow shortfall. Protect yourself by contacting your mortgage company to verify your escrow balance.

Low-interest rates without clear details

Lenders may advertise low-interest rate offers, implying broad eligibility, but often, the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or require paying discount points to receive the advertised rate.

If you’re in the market for a home loan, shop around and compare terms with various VA-approved lenders.

Aggressive sales tactics

You may receive offers that urge you to “act now” or promise “fast approval.” You may be pressured to refinance your VA loan only a month or two after you’ve closed on your current VA loan.

Keep in mind that many of these advertised “savings” are costs that will increase your new home loan balance. Before proceeding with an offer, consider the long-term and short-term benefits and consequences.

If you receive suspicious solicitations or experience mortgage issues, VA is available to support you. Submit a ServiceNow inquiry or call VA at (877) 827-3702. Submit a complaint to the Consumer Financial Protection Bureau online or by calling (855) 411 -CFPB (2372).

*Editor’s Note: This story updates a previously published post from 2017.