Buying a Home
Renovating or Repairing Your Home
Buying a Car
Franchises and Other Business Opportunities
A College Education
Paying for Funeral Goods and
Services
_______________________________________________________________________________________
Making a major purchase like
a home or a car can be a stressful and complex process. But if you learn about
your options, you can make a well-informed decision.
Buying a home
For many people, being able to buy a house or condo represents the realization of the American dream. Before making what is likely to be the biggest purchase decision of your life, first make sure to understand the different types of mortgage products that are available. Then, you can choose the one that best meets your needs.
Shopping around for a home loan or mortgage will help you get the best financing deal. A mortgage — whether it’s a home purchase, a refinancing, or a home equity loan — is a product, just like a car, so the price and terms
are negotiable. Compare all the costs involved in getting a mortgage, including points, fees, and down payments. Shopping, comparing, and negotiating could save you thousands of dollars.
Points
Points are fees paid to the lender or broker for the loan and often are linked to the interest rate; usually the more points you pay, the lower the rate. One point equals one percent of the loan amount.
• Check your local newspaper or lender for information about current rates and points.
• Ask for points to be quoted to you as a dollar amount — rather than just as the number of points — so that you will actually know how much you will have to pay.
Fees
A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Each lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money you need to pay these fees, but doing so will increase your loan amount and total costs. “No cost” loans sometimes are available, but they usually involve higher interest rates.
Major Purchases and investment
terms to Understand
Get Information from
Several Types of Lenders
Home loans are available from several types of lenders — savings banks, commercial banks, mortgage companies, and credit unions. Different types of lenders may quote you different prices, so contact several of them to make sure you’re getting the best price.
You can also get a home loan through a mortgage broker. Brokers find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms you can choose from. Brokers generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Contact more than one broker, just as you contact more than one bank or thrift institution.
Get All Important
Cost Information in Writing
Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing only the amount of the monthly payment or the interest rate is not enough. Ask for information from each lender about the same loan amount, loan term, and type of loan, and get it in writing.
When you ask for information about rates, ask each lender:
• for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week.
• whether the rate is fixed or adjustable. When interest rates for adjustable-rate loans go up, the monthly payment usually goes up, too.
• how the rate and your loan payment will vary if the rate quoted is for an adjustable rate loan, including whether your payment will be reduced when rates go down.
• about the loan’s annual percentage rate (APR). The APR takes into account not only the interest rate, but also points, broker fees, and other credit charges that you may be required to pay, expressed as a yearly rate.
Once you are satisfied with the terms you have negotiated, get a written lock-in of the terms — this will guarantee you a specific interest rate if you close on the loan within a period of time, usually 60 or 90 days. The lock-in should include the rate that you have agreed to, how long the lock-in lasts, and the number of points you will pay. A fee may be charged for locking in the loan rate but this fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. If that happens, try to negotiate a compromise with the lender or broker.
Down Payments and Private
Mortgage Insurance
Some lenders require 20 percent of the home’s purchase price as a down payment.
However, many lenders now offer loans that require less than that — sometimes as little as 5 percent on conventional loans. If you can’t make a 20 percent down payment, lenders usually require you to buy private mortgage insurance (PMI) to protect them in case you don’t make your payments. When government-assisted programs like FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially lower.
If PMI is required for your loan, ask what the total cost of the insurance will be, how much your monthly payment will be, including the PMI premium, and how long you will be required to pay PMI.
Mortgage Discrimination
Fair lending is required by law. The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.
The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.
Under these laws, you cannot be refused a loan based on these characteristics, nor be charged more for a loan or offered less favorable terms based on such characteristics.
If you think you’ve been discriminated against:
• complain to the lender. Sometimes you can persuade the lender to reconsider your application.
• check with your state Attorney General’s office to see if the creditor violated state laws.
• contact a local private fair housing group and report the violations to the appropriate government agency. If your mortgage application is denied, the lender must give you the name and address of the agency to contact.
For ECOA violations involving mortgage and consumer finance companies, file a complaint with the FTC at www.ftc.gov/ complaint or 1-877-FTC-HELP.
Lender do’s and don’ts
Lenders must:
• consider reliable public assistance income the same as other income.
• consider reliable income from part-time employment, Social Security, pensions, and annuities.
• consider reliable alimony, child support, or separate maintenance payments, if you choose to tell them about it. A lender may ask you for proof that you receive this income consistently.
• accept someone other than your spouse if a co-signer is needed. If you own the property with your spouse, he or she may be asked to sign documents allowing you to mortgage the property.
Lenders cannot:
• discourage you from applying for a mortgage or reject your application because of your race, national origin, religion, sex, marital status, or age, or because you receive public assistance income.
• consider your race, national origin, or sex, although you will be asked to disclose this information voluntarily to help federal agencies enforce anti-discrimination laws. A creditor may consider your immigration status and whether you have the right to remain in the country long enough to repay the debt.
• impose different terms or conditions, such as a higher interest rate or larger down payment, on a loan based on your race, sex, or other prohibited factors.
• consider the racial composition of the neighborhood where you want to live.
This also applies when the property is being appraised.
• ask about your plans for having a family. But they can ask questions about expenses related to your dependents.
• refuse to purchase a loan or set different terms or conditions for the loan purchase based on discriminatory factors.
• require a co-signer if you meet their standards.
Credit Problems? Still Shop,
Compare, and Negotiate
Don’t assume that minor credit problems or difficulties stemming from unique circumstances like illness or temporary loss of income will limit your loan choices to high-cost lenders. If your credit report contains negative
information that is accurate, but there are good reasons to trust that you will repay a loan, explain your situation to the lender or broker.
If you cannot explain your credit problems, you will probably have to pay more than borrowers who have good credit histories.
But don’t assume that the only way to get credit is to pay a high price.
Ask how your credit history affects the price of your loan and what you can do to get a better price.
Take the time to shop around and negotiate the best deal that you can.
Credit problems or not, it’s always a good idea to review your credit report for accuracy and completeness before you apply for a loan.
For details about different types of home mortgages, visit www.ftc.gov and read Looking for the Best Mortgage.
Looking for the Best Mortgage? Shop, Compare, Negotiate. [PDF version]
Use these three steps to save money on a mortgage or home loan. Includes a mortgage shopping worksheet.
• If you know someone who is looking for a home, give them a copy of Looking for the
Best Mortgage.
• Partner with the local housing authority to do a briefing session on the ins and outs of
home mortgages and give out copies of Looking for the Best Mortgage.
• Partner with a local law school to do a briefing session on what’s legal — and what’s
not — in the mortgage lending area.
After you purchase a home,
you’ll have to pay to keep it cool or warm.
And home heating and cooling
bills can add up to hundreds of dollars every month.
For tips on how to save money on heating and cooling your home, visit www.ftc.gov/energysavings .
Recognize and avoid Home
Repair Scams
Renovating or Repairing Your
home
Once you own a home, you might consider a renovation or simply repairing some items that need attention. If you are not going to do the work yourself, finding a competent and reliable contractor can be the first step to a successful and satisfying home improvement project.
Your home may be your most valuable financial asset and that’s why it’s important to be cautious when you hire someone to work on it. Home improvement and repair and maintenance contractors often advertise in newspapers, the Yellow Pages, and on the radio and TV. But don’t consider an ad an indication of the quality of a contractor’s work.
Your best bet is a reality check from friends, neighbors, or co-workers who have had improvement work done.
- Get written estimates from several firms.
- Ask for explanations for price variations.
- Don’t automatically choose the lowest bidder.
Before you hire a contractor,
interview them and ask some questions.
• How long have you been in business?
• Are you licensed and registered with the state?
• How many projects like mine have you completed in the last year?
• Will my project require a permit?
Ask for a list of references and talk with former clients directly. They can help you decide if a particular contractor is right for you.
Ask if:
• you can visit their home to see the completed job
• they were satisfied with the project and if it was completed on time
• there were unexpected costs and if so, what they were
• they would recommend the contractor or use the contractor again
Not all contractors operate
within the law.
Here are some tip-offs to
potential rip-offs.
Be wary of a
contractor who:
• solicits door-to-door
• just happens to have materials left over from a previous job
• only accepts cash payments
• asks you to get the required building permits
• does not list a business number in the local telephone directory
• tells you your job will be a “demonstration”
• pressures you for an immediate decision
• offers exceptionally long guarantees
• asks you to pay for the entire job up front
• suggests that you borrow money from a lender the contractor knows
For more information about renovating or repairing your home
and scams to watch out for, visit www.ftc.gov
and look for Home Sweet Home Improvement.
Place a copy of Home
Sweet Home Improvement in public meeting areas like the lobby of a community
center, public computer rooms at your local library, your church’s hall, and
anyplace else where people go for information.
If you have a problem with your home improvement project, try to resolve it with the contractor.
Follow up any phone conversations with a letter.
- Send it by certified mail and request a return receipt as proof that the company received your letter.
- Keep a copy for your files.
- If you can’t resolve the situation, contact one of the following organizations for more information and help:
- • your state and local consumer protection offices
- • your local Better Business Bureau
- • your state or local Builders Association and/or Remodelers Council
Buying a car
For most consumers, a car is a very big purchase. Before you shop for a new car, make sure you know how to make a smart deal. Think about what car model and options you want and how much you’re willing to spend. Do some
research. You’ll be less likely to feel pressured into making a hasty or expensive decision and more likely to get a better deal. Shop around and plan to negotiate on price. Dealers may be willing to bargain on their profit margin, often between 10 and 20 percent. Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price.
Buying a Used Car
If you need transportation and have a limited budget, buying a used car from an individual or a dealer might be a good option. But buying a car from a private individual is different than buying from a dealer because private sales
generally aren’t covered by federal law, or by “implied warranties” of state law. A private sale probably will be “as is” — you’ll have to pay for anything that goes wrong after the sale.
The Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale. The Buyers Guide gives a great deal of information, including:
• whether the vehicle is being sold “as is” or with a warranty
• what percentage of the repair costs a dealer will pay under the warranty
• the fact that spoken promises are difficult to enforce
• the major mechanical and electrical systems on the car, including some of the major problems you should look out for
The Buyers Guide also tells you to:
• get all promises in writing
• keep the Buyers Guide for reference after the sale
• ask to have the car inspected by an independent mechanic before the purchase
Whether you buy a used car from a dealer or an individual,
- examine the car using an inspection checklist.
- You can find checklists in magazines and books and on Internet sites that deal with used cars.
Test drive the car under different road conditions — on hills, highways, and in stop-and-go-traffic; ask for the car’s maintenance records from the owner, dealer, or repair shop; and hire a mechanic to inspect the car.
Auto negotiations have a vocabulary of their own.
Here are some terms you may
hear when you’re talking price.
• Invoice Price is the manufacturer’s initial charge to the dealer. This usually is higher than the dealer’s final cost because of rebates, allowances, discounts, and incentive awards. Generally, the invoice price should include freight (also known as destination and delivery).
If you’re buying a car based on the invoice price (for example, “at invoice,” “$100 below invoice,” “two percent above invoice”) and freight is included, make sure freight isn’t added to the sales contract.
• The Monroney sticker shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price (MSRP), the manufacturer’s transportation charge, and the fuel economy (mileage). Federal law requires that this label be placed on the car window; only the buyer can remove it.
• Dealer Sticker Price, usually on a supplemental sticker, is the Monroney sticker price plus the suggested retail
price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), and dealer preparation.
• Base Price is the cost of the car without options, but with standard equipment and factory warranty. This price is printed on the Monroney sticker.
Learning the terms
Financing Your Car
If you decide to borrow money to buy your car, be aware that the financing offered by the dealer, even if the dealer contacts lenders on your behalf, may not be the best deal you can get. Contact other lenders directly.
Compare the financing they offer you with the financing the dealer offers you. Because offers vary, shop around for the best deal, comparing the annual percentage rate (APR) and the length of the loan. When negotiating to finance a car, don’t focus only on the monthly payment.
The total amount you will pay depends on the price of the car you negotiate, the APR, and the length of the loan.
Considering a Service
Contract
A service contract that you may buy with a new car provides for the repair of certain parts or problems. This type of contract is offered by manufacturers, dealers, or independent companies and may or may not provide coverage beyond the manufacturer’s warranty. A warranty is included in the price of the car while a service contract costs extra.
Before deciding to purchase a service contract, read it carefully to get the answers to these questions.
• What’s the difference between the coverage under the warranty and the coverage under the service contract?
• What repairs are covered?
• Is routine maintenance covered?
• Who pays for the labor and parts?
• Who performs the repairs? Can repairs be made elsewhere?
• How long does the service contract last?
• What are the cancellation and refund policies?
For more information about buying a new or used car, visit www.ftc.gov .
Organize a car buyer’s information fair and give out free helpful publications about buying a new car, reading car ads, alternative fuel vehicles, used car auctions, vehicle financing, improving gas mileage in your vehicle, and leasing or renting a car. Print them at www.ftc.gov .
Drive down the cost of Owning
a Vehicle
The way you fuel, drive, and maintain your car — whether new or used — impacts the cost of operating it.
You can lower the cost of
driving if you:
• combine errands and avoid unnecessary idling
• use overdrive gears and cruise control
• stay within the posted speed limits
• carpool
• use the recommended octane level for your car
• steer clear of “gas saving” gadgets or any gizmo that promises to improve your gas mileage
• keep your tires properly inflated and aligned and your engine tuned according to your owner’s manual
• change your oil and use the grade of motor oil as recommended in the owner’s manual
• check and replace air filters regularly
• remove extra weight from your trunk
Franchises and Other Business
Opportunities
For many entrepreneurs, franchises are a popular way to start a business. A franchise typically enables you, the investor or “franchisee,” to operate a business. By paying a franchise fee, which may be thousands of dollars, you are given a format or system developed by the company (franchisor), the right to use the franchisor’s name for a period of time, and assistance. For example, the franchisor may help you find a location for your outlet; provide initial training and an operating manual; and advise you on management, marketing, or personnel. Some franchisors offer continuing support like monthly newsletters, a toll-free telephone number for technical assistance, and periodic workshops or seminars.
While buying a franchise may reduce your investment risk by enabling you to associate with an established company, it can be costly.
You also may be required to give up significant control over your business, while taking on contractual obligations with the franchisor.
Franchise and Business Opportunity
If you’re a prospective business owner and you are considering buying a franchise or investing in another business opportunity, investigate it carefully. The law requires franchise and business opportunity sellers to give you specific information to help you make an informed decision.
A franchise or business opportunity seller must give you a detailed disclosure document at least 10 business days before you pay any money or legally commit yourself to a purchase.
You can use these disclosures to compare a particular business with others you may be considering or simply for information.
The disclosure document includes:
• the names, addresses, and telephone numbers of at least 10 previous purchasers who live closest to you
• a fully audited financial statement of the seller
• the background and experience of the business’s key executives
• the cost of starting and maintaining the business
• the responsibilities you and the seller will have to each other once you’ve invested
Recognizing Business Opportunity
Fraudulent business opportunity promoters often use the classifieds and the Internet to promote all kinds of offers, from pay phone and vending machine routes to work-at-home businesses like medical billing and envelope stuffing. Too often, these ads make promises — about earnings, locations, merchandise, or marketability — that sound great, but aren’t true. The result: you can get ripped off and lose money instead of making it.
Before investing in
any business opportunity:
• look at the ad carefully. If it claims buyers can earn a certain income, it also must give the number and percentage of previous purchasers who achieved the earnings.
• get earnings claims in writing. If the business opportunity costs $500 or more, the promoter must back up the earnings claim in a written document. If it’s a work-a-home or other business opportunity that involves an investment of under $500, ask the promoter to put the earnings information in writing.
• interview each previous purchaser in person, preferably where their business operates.
• contact the Attorney General’s office, state or county consumer protection agency, and Better Business Bureau where the business opportunity promoter is based and where you live to find out whether there is record of unresolved complaints.
• take your time. Promoters of fraudulent business opportunities often use high-pressure tactics to get your money fast.
For more information on business opportunities and the Franchise and Business Opportunity Rule, visit www.ftc.gov/bizopps .
Microsites
Facts for
Consumers
How
to: evaluate whether owning a franchise is right for you; understand your
obligations as a franchise owner; shop for franchise opportunities; and ask the
right questions before you invest. 8.5"x11", 24 pages.
Explains
the importance of getting pre-investment information in writing, and
researching other aspects of the business' performance by interviewing other
people who have bought into the program. 8.5"x11", 4 pages.
Explains
the Federal Trade Commission's Franchise and Business Opportunity
Medical
billing opportunity promoters often misrepresent earnings potential and don't
provde key, pre-investment information required by law. 8.5"x11", 4
pages.
Cautions
consumers about web-based business opportunities that promise more than they
can possibly deliver, and what you can do to protect yourself.
8.5"x11", 4 pages.
Consumer Alerts
- Answering the Knock of a Business 'Opp' [PDF] [en español]
- Buying a Janitorial Services Franchise: Making a Clean Sweep [PDF]
- Lotions and Potions: The Bottom Line About Multilevel Marketing Plans [PDF]
- The Bottom Line About Multilevel Marketing Plans [PDF]
A college education
For many people, a college education can be the key to a successful career. But a college or university education can be expensive. Some schools provide financial help or “scholarships.”
Many students take out loans, apply for financial aid or scholarships, or use a combination to help pay for their schooling. Unfortunately, in their efforts to pay the bills, many students are falling prey to scholarship and financial aid scams. Some cheats guarantee or promise scholarships, grants, or fantastic financial aid packages that turn out to be scams. Many use high pressure sales pitches at seminars where you’re required to pay immediately or risk losing out on the “opportunity.”
If you’re looking for
financial aid or a scholarship:
• take your time. Don’t rush into paying at any seminar.
• investigate the organization you’re considering paying for help. Talk to a guidance counselor or financial aid advisor before spending your money. You may be able to get the same help for free.
• be wary of “success stories” or testimonials of extraordinary success. The seminar operation may have paid people to give glowing stories. Instead, ask for a list of at least three local families who used the services in the last year, and talk to them in person.
• be cautious about purchasing from seminar representatives who don’t want to answer questions or who give answers you really don’t understand. Legitimate business people are always willing to give you information about their service.
• ask how much money is charged for the service, what services will be performed, and about the company’s refund policy. But keep in mind that you may never recoup the money you give to a scammer, despite the refund policies they tell you about.
• remember that legitimate companies never guarantee or promise scholarships or grants before you apply.
Watch Out for these Signs of
a Diploma Mill
• “No Studies, No Exams — Get a Degree for Your Experience.” Diploma mills grant degrees for “work or life experience” alone.
Accredited colleges may give a few credits for specific life experiences, but not an entire degree.
• “No Attendance.” Legitimate colleges or universities, including online schools, require substantial course work.
• “Flat Fee.” Many diploma mills charge on a per-degree basis. Legitimate colleges charge by the credit, course, or semester, not a flat fee for an entire degree.
• “No Waiting.” Operations that guarantee a degree in a few days, weeks, or even months cannot be legitimate. If an ad promises that you can earn a degree very quickly, forget about it.
• “Click Here to Order Now!” Some scams use aggressive sales tactics. Accredited colleges don’t use spam or high-pressure telemarketing to market themselves. Some diploma mills advertise in newspapers, magazines, and on the web.
Bogus Diplomas
Some people may be tempted to pay a flat fee for a degree awarded on life experience without having to take any courses. Businesses that offer this type of degree are called “diploma mills.” If you use a so-called “degree” from a diploma mill to apply for a job or promotion, you risk not getting hired, getting fired, and in some cases, being prosecuted.
Most employers and educational institutions consider it lying if you claim academic credentials that you didn’t earn through actual course work.
To learn more about how to avoid a scholarship scam, visit www.ftc.gov/scholarshipscam .
Give copies of the FTC’s brochure, bookmark, or poster about scholarship scams to guidance or career counselors at your area high schools, to PTA presidents, or to organizers of local college fairs.
Paying for Funeral Goods and
Services
When a loved one dies, grieving family members and friends often are confronted with dozens of decisions about the funeral — all of which must be made quickly, and many of which are costly. Funerals rank among the most expensive purchases many consumers will ever make. A traditional funeral, including a casket and vault, costs about $6,000, although “extras” like flowers, obituary notices, acknowledgment cards, or limousines can add thousands of dollars to the bottom line. Many funerals run well over $10,000. Yet even if you’re the kind of person who might haggle with a dozen dealers to get the best price on a new car, you might feel uncomfortable comparing prices or negotiating over the details and cost of a funeral. Compounding this discomfort is the fact that some people “overspend” on a funeral or burial because they think of it as a reflection of their feelings for the deceased.
The trend toward making funeral arrangements before they’re needed suggests that many consumers want to compare prices and services so that when the time comes, the funeral reflects a well-informed purchase decision, as well as a meaningful one. Many say they see funeral planning as an extension of estate planning.
The Funeral Rule
Most funeral providers are professionals who strive to serve their clients’ needs. But some aren’t — and don’t. They may take advantage of their clients through high prices, overcharges, double charges, or unnecessary services. A federal law makes it easier for you to choose only those goods and services you want or need and to pay only for those you select, whether you are making arrangements for yourself or for a loved one.
The law requires funeral directors to give you itemized prices in person and, if you ask, over the phone. It also requires funeral directors to give you a written price list to keep that shows the goods and services the funeral home offers. If you want to buy a casket or outer burial container, the funeral provider must show you descriptions of the available selections and the prices before showing you the caskets.
Many funeral providers offer various “packages” of commonly selected goods and services that make up a funeral. But when you arrange for a funeral, you have the right to buy goods and services separately. You do not have to accept a package that may include items you do not want.
According to the Funeral
Rule:
• you have the right to choose the funeral goods and services you want (with some exceptions). The funeral provider must state this right in writing on the general price list.
• if state or local law requires you to buy a particular item, the funeral provider must disclose it on the price list, with a reference to the specific law.
• the funeral provider may not refuse, or charge a fee, to handle a casket you bought somewhere else.
• a funeral provider who offers cremations must make alternative containers available.
For more information about purchasing funeral goods and services, visit www.ftc.gov/ funerals and read Funerals: A Consumer Guide.
If you own a funeral home and want more information about your responsibilities under the law, read Complying with the Funeral Rule at www.ftc.gov/funerals .
Microsites about Funerals
Explains
your rights; lists considerations when choosing a funeral provider; offers
questions to ask when making arrangements, comparing products and services, and
costs. Discusses pre-need planning. Resources for more information.
Facts for Consumers
Explains
your rights; lists considerations when choosing a provider; offers questions to
ask when making arrangements, comparing products and services, and costs.
Discusses pre-need planning. Resources for more information. 6"x9",
36 pages, color.
Warns
consumers about unscrupulous businesses that exaggerate the benefits or the
appropriateness of living trusts. Provides a glossary of terms, tips for estate
planning, and resources for more information. 8.5"x11", 4 pages.
An
abbreviated version of "Funerals: A Consumer Guide." Explains the
Funeral Rule in brief. 8.5"x11", 6 pages.
Articles
- Paying Final Respects: Your Rights When Buying
Funeral Goods and Services
[PDF]
