Getting a mortgage is a daunting prospect, which explains why so many people look for advice. However, make sure that you are getting the right advice!
Here is some of the worst mortgage advice people can give :
“Don’t bother getting pre-approved for a mortgage”
While pre-approval might not be “official,” it will help you avoid major problems down the road. Getting pre-approved by a bank is one way to avoid the heartbreak that comes with falling in love with a house you can never buy. It may also give you an edge if there are multiple offers for the same property. A seller will feel more confident selecting a bid from someone with a mortgage pre-approval rather than a person who hasn’t even begun the process.
“Get your mortgage from the bank where you already have an account”
You already know to shop around for your home. You need to do the same with your loan. Even though the big bank claims they’ll give better service and an easier application process, that may not always be true. Always go with the most favorable terms.
“Don’t bother reading the fine print”
That fine print contains some clauses that could cost you serious money! Take your time and go over every last word with a fine-toothed comb. If the process takes a little longer, just wait it out. It’s worth it to know what you’re getting into rather than not.
“Always go with the lower interest rate”
Lower interest rates can have all sorts of strings attached – often in the form of the adjustable arm rate. ARMs are not always a bad thing, but just be on the alert when someone suggests an interest only ARM. Interest only ARMs can result in significant payment shock, especially if rates increase down the line and amortization kicks in. In the past, as interest rates were dropping and home values were rising rapidly, interest only ARMs worked well for some people – especially those who didn’t plan to stay in the home beyond the length of the loan’s first term. But although interest rates are low, they’re likely to rise soon, so beware.
“Borrow as much as you’re approved for, even if you don’t need it”
It’s always wise to live slightly below your means, since you never know when life might pitch you a financial curveball, such as a layoff or medical problem. You can qualify for monthly payments up to 50% of your income these days. Half of your gross income seems like quite a bit for most people, especially when they factor in taxes and insurance. So be sure to make a budget, decide what monthly payment you’re comfortable with, and stick to it.
