By: Zachary R. Roth, Esq.
Question: I’ve read about people alleging deceptive mortgage practices in the purchase of new construction homes. How can I protect myself?
Buying a newly constructed home is an exciting milestone — but recent reports of deceptive mortgage practices have left many buyers feeling uneasy. Some builders or preferred lenders may present incentives that seem too good to pass up, only for the buyer to later discover hidden costs, shifting loan terms, or unexpected fees. Fortunately, there are clear, proactive steps you can take to protect yourself and ensure your mortgage transaction is transparent and fair.
1. Scrutinize the Loan Estimate and Preliminary Closing Disclosure
The loan estimate (LE) and preliminary closing disclosure (CD) are two of the most important documents in the mortgage process. The LE outlines your projected interest rate, monthly payment, and closing costs, while the CD provides a more detailed breakdown of the final terms before closing. Review both carefully and compare them line by line. Even small differences between the two can signal a problem — such as an increased rate, added fees, or changes in the loan structure. If you notice anything that doesn’t match what you were promised, raise it immediately with your lender and demand an explanation in writing.
2. Ask Questions About Fees and Future Costs
Not all the costs listed on your closing disclosure are one-time fees. Some expenses, such as private mortgage insurance (PMI), homeowners’ association (HOA) dues, or certain escrowed items like real estate taxes, can continue long after closing, even perpetually. Ask your lender and closing agent which items are recurring and which are not. Also inquire whether any of these charges are subject to change and under what circumstances. Deceptive practices sometimes involve presenting estimates for taxes, insurance, or HOA fees that are unrealistically low to make the loan appear more affordable. Understanding which numbers are fixed and which could increase later helps you make a fully informed decision.
3. Hire an Experienced Real Estate Attorney
Perhaps the most effective way to protect yourself is to have an attorney review your loan documents before you sign anything. Mortgage contracts and builder agreements are complex, and small clauses can have big consequences. A real estate attorney can identify red flags — such as prepayment penalties, misleading incentives tied to a specific lender, or terms that could change after closing — and advise you on your options. The cost of hiring an attorney is minor compared to the potential financial losses that can occur from an unfavorable or deceptive mortgage arrangement.
4. Do Your Own Due Diligence
Beyond reviewing documents and hiring professionals, do your own research. Look up your lender and builder online, read reviews, and check whether there have been complaints with the Consumer Financial Protection Bureau (CFPB) or your state’s attorney general. A history of complaints or lawsuits is a warning sign to proceed with caution. You can also request that your lender provide written confirmation of any verbal representations made about rates, fees, or closing costs.
Buying a new home should be a moment of pride, not regret. By taking the time to review your disclosures closely, asking the right questions, and working with an attorney, you can confidently move forward knowing you’ve done everything possible to protect yourself from deceptive mortgage practices.
About the Author
Zachary R. Roth, Esq., is a Shareholder of Ansbacher Law who represents clients in residential and commercial real property purchases and sales, real property litigation, construction defect litigation, homeowners’ and condominium association disputes, and corporate transactions and litigation. You may learn more about Mr. Roth here.