How to Avoid Mortgage Scammers
The text claims it’s your bank. You’ll lose the home sale if you don’t send $25,000 immediately.
It’s enough to make anyone pay attention. They see what appears to be a completely honest digital message, and they act on it. Some people will spend a lot of money to avoid financial issues, and that’s exactly what they do.
Welcome to the world of digital scammers, which prey on a sense of urgency and fear. According to FBI reports, digital fraud has increased a full 100% since the pandemic. Unfortunately, one of the targets of these scammers is where it can hit the wallet the most: your mortgage. Staying alert for common mortgage scams can require more awareness than you imagine. The claims and delivery systems continue to get more sophisticated. Here’s what you should be looking out for.
Caution With Credit Repair Companies

“Credit repair” is a hot-button topic. After all, getting a loan with the best interest rates can be tricky if you have a poor credit score. People seek ways to boost their credit rating and reduce mortgage payment costs. That may be why the industry has ballooned to over $4 billion as of 2021.
Anyone who has worked with credit repair companies knows that credit history impacts your mortgage application. People with less-than-stellar credit want to buy a home, too. And someone who wants to buy a home with poor credit may be especially susceptible to the quick-fix attitude that scammers seek.
How the scam looks: A scammer may try to get your information by claiming they’ll help you remove the problems on your consumer credit reports, like a string of late rent payments or a past short sale. When that information is 100% accurate, the false promise that you could get these strikes removed from your credit history should be a red flag. The scammers will charge you upfront for the promise of potentially increasing your credit score down the line. Then, they make off with your fee, doing nothing to help your candidacy for landing a mortgage or boost your credit score.
How to avoid it: Be wary of credit repair services who contact you. Yes, credit repair services are legitimate businesses that offer help. Their advice can potentially improve your credit for a mortgage application. But if one solicits you first rather than you finding them, check with the Better Business Bureau first.
Mortgage Lenders Offering Unrealistic Terms

The sad thing about mortgage scammers is that they can take advantage of people when they’re at their most vulnerable. You may have found your dream home and be ready to apply for a mortgage. Now it’s time to get the process going, which makes you a serious and motivated prospect. Unfortunately, scammers count on that when using a “bait and switch” style scam.
How the scam looks: Scammers may present themselves as legitimate mortgage companies offering loan products with generous terms. They may also offer mortgage terms that extend far beyond your ability, like well-below-market interest rates or a loan amount higher than what your financial situation can afford. This should be a red flag no matter what kind of house you want to get.
Once unsuspecting homeowners sign with the mortgage broker, they are told they no longer qualify for the generous terms. This loan modification scam sticks the borrower with higher fees or unattractive loan terms.
How to avoid mortgage fraud: If it sounds too good to be true, it probably is. Unsolicited offers are one potential warning sign. Pay attention to whether the prospective lender downplays your credit score or bad credit history, such as a bankruptcy or prior foreclosure. While you can qualify for a mortgage with bankruptcy on your record, there are some timing rules and additional steps to follow. Another tactic inflates the value of your existing home or income.
Additionally, if the lender recommends a type of home loan requiring a monthly payment larger than 28% of your disposable income, be wary. Most reputable mortgage lenders are keen to qualify borrowers with a steady income stream. Still, they won’t lend more than what they think the borrower can reasonably afford for monthly mortgage payments. Banks don’t want to foreclose on a home, as the foreclosure process is timely and expensive.
Shop around for mortgage lenders, and listen to how they arrive at their pre-qualification numbers based on your credit, income, and debts. Ask your chosen lender to lock in your rate and break down the fees. Keep a paper trail of all conversations and documents. Keep tabs on current mortgage rates so you know what the average numbers are and what’s reasonable for your financial health.
Prevent Mortgage Modification Scams
Loan mortgage modification scams target vulnerable homeowners struggling to keep up with their mortgage payments. Scammers often pose as legitimate companies, offering fraudulent services that promise to renegotiate loan terms or reduce monthly payments.
How the scam works: Scammers typically contact homeowners through ads, phone calls, or emails, claiming they can secure better mortgage terms through their “special relationships” with lenders. They may ask for advance fees or direct homeowners to make payments to them instead of the lender. They convince victims to stop communicating with their mortgage company. In some cases, they persuade homeowners to transfer their property title under the guise of saving their home, leaving them at risk of foreclosure.
What to look for: Be wary of anyone demanding upfront fees for loan modification services—this is illegal. Scammers often use high-pressure tactics, guarantee results, or advise you to stop paying your mortgage or contacting your lender. Always verify the legitimacy of a company with government or consumer protection agencies before agreeing to any services.
Avoiding Escrow Wire Fraud

One challenge with handling a mortgage is that you may be in the throes of your first major home purchase. During this time, you’ll find yourself writing some of the largest checks you’ve ever written, especially for the closing costs at the end. The closing is a vulnerable time, as you’re days or hours from buying your dream home. And, mortgage scammers know you’re about to transfer hundreds of thousands of dollars. Escrow is one area where you may have a false sense of security because it’s set up as a non-partisan third-party service. Always double-check before you sign on the proverbial dotted line.
How the scam looks: The trick with escrow wire fraud is that a scammer tries to get you to send the money to the wrong place. It starts when a hacker breaks into a company or individual’s email, sending you a request for escrow funds. They may even set up a fake website to make the wire transfer request look legitimate. Wire fraud happens during one of the more stressful times of the closing process, and it jeopardizes the entire sale. In most cases, you cannot do a wire recall. Those funds are gone.
How to avoid wire fraud: Always double-check that you’re sending the money to the right place before you “cut any check” during a funds transfer. Look closely at any email addresses for any unusual characters or discrepancies. Call the escrow agent or bank you’re wiring funds to and talk to a real person to confirm numbers. Be suspicious of anyone trying to pressure you to write the check or transfer funds at the wrong time. Mortgage closing scams prey on a sense of urgency, claiming you’ll lose the sale.
Tips to Avoiding Mortgage Scammers

Avoiding mortgage scams requires vigilance and an understanding of common red flags. Here are practical tips to help you stay safe:
Research Lenders Thoroughly
- Work with reputable mortgage lenders or brokers with established track records. If you can’t find reviews online, they may be a fraudulent company.
- Check their credentials with organizations like the Better Business Bureau (BBB) or Nationwide Multistate Licensing System (NMLS).
- Be cautious of any unsolicited requests for anything–your financial information, banking information, or closing funds.
- Ask for recommendations from real estate agents, as they work with mortgage companies daily. They have leads on who is a reputable lender in your area.
- Learn about the mortgage process to tell when you’re working with legitimate lenders.
Be Wary of Unrealistic Promises
- Telltale signs promise guaranteed approvals, unrealistically low rates, or “no-down-payment” offers. If it sounds too good to be true, it likely is.
- If they’re offering a larger mortgage than what you can afford, that’s a red flag.
- Get everything in writing and as an itemized list. Never rely on verbal promises.
Avoid Upfront Fees
- Legitimate lenders do not demand fees before processing your application.
- Be suspicious of any requests for wire transfers or paying a fee before receiving services.
Don’t Share Personal Information Unnecessarily
- Be cautious about providing your Social Security Number, bank account details, or other sensitive information.
- Verify the legitimacy of the financial institution before sharing.
Read the Fine Print
- Scammers exploit complicated or hidden terms to trap you in unfavorable terms.
- Take the time to read all documents or have them reviewed by a legal professional.
Beware of High-Pressure Tactics
- Unscrupulous lenders often push you to act quickly, using phrases like “limited-time offer” or claiming rates will soon increase. A trustworthy lender will give you time to make informed decisions.
Verify Contact Information
- Ensure the lender’s contact details match their official website or listing. Be cautious if communication is limited to a personal email or phone number.
What To Do If You’re A Victim of Fraud
What should you do if you’re the victim of a mortgage scam? There are a few action steps you can take right away:
- Create a file that details all of the information you need. This file should include a contact sheet. Track the perpetrator’s name, email address, mailing address, telephone number, website address, and any other information that could be identifying including any (real or not) regulatory numbers used.
- Learn your rights.Find a list of your rights at the U.S. Department of Justice. This will help you get a sense of what to expect moving forward.
- Consult with a licensed attorney and get legal assistance to determine your best next steps.
- Report the mortgage fraud to the appropriate avenue. That might be the Housing and Urban Development (HUD) Office of the Inspector General, or the Consumer Financial Protection Bureau (CFPB) for general mortgage loan scamming.
There’s no guarantee you’ll get back what you lost, but you might help others who would have otherwise been the next victims of these scams.
Be wary about clicking links or issuing money without hesitation. However, if you know what tactics scammers use, you’ll stand a far better chance of avoiding mortgage scammers. Use these tips to work with legitimate mortgage companies, well-reputed banks, real estate agents, and any other third parties regarding your mortgage application.
Updated November 2024
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Preston Guyton
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