Mortgage Advice You Should Ignore



When you start talking about buying a new home, you’ll start getting advice. Some will tell you where and what to buy and others will give you mortgage advice. Before you listen, check it against our list of 5 pieces of mortgage advice you should ignore.

“Look no farther than your local bank. They’ll treat you right.”

Sure – they might. But do look farther. Some local banks have good loan programs, with rates and terms that will be beneficial to you. Others do not. A mortgage broker has the ability to “shop” programs from many banks in order to find the program that’s just right for you.

So check your local bank. Then check with one or two mortgage brokers. Get good faith estimates from each of them, then choose the lender who offers you the best rate and terms.

“Don’t bother to see a lender until you’ve found the house you want.”

This is really terrible advice. Seeing a lender should be your first step.

Why? Because choosing your lender and becoming pre-approved for your loan before you begin to shop for a home will benefit you in three ways.

First, it will show you whether you need to make some changes to increase your credit score before you make an actual loan application. If that is the case, your lender will (should) give you some advice to make that happen.

Second, it will enable you to know your spending limit. It’s horribly disappointing to fall in love with a house only to learn that it is definitely out of your range.

Third, having a loan pre-approval in hand when you make an offer will assist in getting your offer accepted. Why should a seller take a chance on someone who may or may not be able to buy? These days, most will not.

“Always choose the loan program with the lowest interest rate.”

On the surface this looks like good advice – but it isn’t always true. Sometimes the lowest rate is an adjustable rate, which means it can and more than likely will increase at some later date. Thousands of people learned this lesson the hard way during the mortgage crisis.

“Base your purchase price on your maximum loan approval amount – go for the gold!”

No, no, no. You may be approved for far more than you should spend. Base your purchase price on the price of a house that will satisfy your needs.

For one thing, your mortgage lender knows only about your monthly obligations. He or she doesn’t know about the other ways you enjoy spending your income.

You might want to take an annual vacation, send your children to expensive summer camps, or buy season tickets to the opera. You may get great enjoyment from dining in 5-star restaurants or attending ball games or concerts. You may have charities you want to support, or love going whole-hog with gift giving during the holidays. These are things that add spice to life, and if your house payment makes them impossible, you’ll soon come to resent that house.

Leave room in your budget for those things that are important to your enjoyment of life.

Second, you never know what life might bring. If you’re obligated to spend every dollar that comes in, a setback such as job layoff or an illness would be a catastrophe.  Give yourself a cushion – and put some money away each month. You’ll breathe easier when you know that you could keep your bills paid for a few months even if you were off work.

Take a close look at your finances. Consider your obligations, think about how you like to spend money, and decide how much you’d like to save each month. Then create a budget and go for a mortgage payment that fits comfortably within it.

“All that fine print in a mortgage contract is just standard jargon and it takes a long time to read. Don’t bother.”

This is really poor advice. Instead, you should read every word, and get clarification on any sentences you don’t fully understand. Even if it takes a few hours, do it. It’s your money and your future on the line.

I always think of the young couple who wanted a new home and thought they had equity in the home they were selling. What they had instead was an early payment penalty that required them to pay almost all of their equity to their lender. They took it well, saying “It’s our own fault. We were young and stupid. We should have read the fine print before we signed.”

Read the fine print. If there’s something there that could damage you in the future, get it changed or get a different lender.



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