When friends, family and co-workers find out you’re thinking about or are already in the process of purchasing a home, there’s a good chance you’ll run across at least one mortgage “expert” offering unsolicited advice. Of course they mean well, but that doesn’t mean the information they’re offering is current, accurate or tailored to your situation. That’s the thing about personal finance decisions; they’re personal. What worked for your cousin or your neighbor or your office mate, may not work for you since everyone makes these decisions based on their own unique circumstances. Here is some the most common bad mortgage advice that you should let go in one ear and out the other.
“There’s no need to read the fine print. All mortgages are basically the same.”
This is terrible advice for a number of reasons. First, there are no one-size-fits-all mortgages. Each one is unique and the terms and conditions can vary widely. Beyond that, though, entering into a contract as significant as a mortgage is not something to be taken lightly. You should read it through carefully at least once, and preferably a second time to catch anything you might have missed. Carefully reviewing your mortgage documents will reveal any mistakes or inconsistencies that differ from what you and lender discussed. Plus, you will know exactly what you are agreeing to; often the fine print contains fees and other costs that may not have been addressed previously. If there are parts of the mortgage you don’t understand, don’t be afraid to ask questions for clarification. If the lender is hesitant to provide more information or gives vague, generalized answers, it might be wise to consider getting your mortgage elsewhere.
“Just choose the lowest interest rate.”
At first blush, this seems like sound advice. A lower interest rate will keep your monthly payment affordable and leave money in the budget for other things. But, a low interest rate on an interest-only adjustable rate mortgage (ARM) can end up backfiring on you later if rates increase and your payment suddenly shoots past an amount you can afford. If you foresee receiving routine, significant income increases, that may not concern you. But many people are more comfortable with the security and predictability of a fixed rate mortgage, which will eliminate surprises and help you budget consistently.
“You don’t need to get pre-approved; just start looking at houses.”
While it’s true that being pre-approved for a mortgage is not a guarantee you will ultimately get the loan, there are many benefits to being pre-approved. Having an idea of how much you will be able to borrow will set you on the right path to looking at homes that are in your price range. Additionally, many REALTORS® are hesitant to take on clients unless they’re pre-approved, and if you should find yourself in a multiple-offer situation, sellers almost always look more favorably on offers from pre-approved buyers. Remember, pre-approval isn’t a guarantee, but it’s a necessary early step in the home-buying process that can make the whole transaction a smoother, more enjoyable experience.
“Get your mortgage from your bank — they’ll take care of you.”
From the standpoint of convenience and familiarity, this makes sense. But, customer loyalty is no longer rewarded the way it once was and chances are, your bank won’t offer you anything significantly better or different than they would offer anyone else. Just like you probably won’t buy the first house you look at, you shouldn’t necessarily go with the first lender you talk to. As with most significant financial decisions, it can save you a lot in the long run if you take the time to do your research and shop around for a lender who’s willing to offer you the best terms.
“Borrow as much as the lender is willing to give you.”
Plenty of people have gotten themselves in over their heads by following this advice. While it’s true the lender may be willing to offer you more than you can even really afford, you’ll be wise to borrow only as much as you need. Remember, there’s more to the expense of owning a home than just the amount borrowed, including property taxes, homeowner’s insurance and routine maintenance. Taking on a mortgage payment that stretches your budget to the breaking point will leave you house poor and unable to experience the true joy and pride of owning your own home.
If someone tries to offer you any (or all) of this bad mortgage advice, your best bet is to smile, nod and move on with the conversation. If you have questions about the mortgage lending process, talk with your lender, your REALTOR® and spend some time doing your own research.