The Worst Mortgage Advice You Can get

1695 0

You don’t have to be a pro or know everything about mortgages to get a home loan. There’s more than enough reliable information available online to help you make an informed decision, plus you’ll work with a loan officer to find the right program based on your credit and needs.

 But although you should ask questions, everybody has their own ideas about mortgages, and some advice you receive should be taken with a grain of salt.

Whether shopping for your first mortgage or a repeat mortgage, here’s five pieces of the worst mortgage advice.

Always Read The Small Print – Not All Mortgages are the same

1. Skip a pre-qualification

Getting pre-qualified for a mortgage before shopping for a house isn’t required, but it can result in a smoother process. Some well meaning friends may say it’s unnecessary to speak with a lender at the beginning stages of the home search, or they might advise only getting pre-qualified once you’ve found a property. The main problem with this advice is that without a pre-qualification you have no idea how much you can afford to spend on a house.

A pre-qualification is the first step to getting a mortgage, and it’s when a lender looks at your income, debt and assets to determine the maximum you can spend on a purchase. Getting a price point before shopping for a house means you don’t waste time looking at homes you can’t buy. And once you’re ready to make an offer, a pre-qualification letter from your bank says you’re a serious buyer, and sellers may give more attention to your offer.

 2. All mortgages are created equal

Anyone who says all mortgages are the same doesn’t have a clue about home loan programs. It’s true that all mortgages serve the same purpose, which is to provide financing for a home purchase. But there are different programs, and a program that works for one borrower may not work for another. So when you apply for a mortgage, don’t think aconventional loan is the only option.

Ask your loan officer for information on different programs to see which is the right match for you. Some programs allow for a lower credit score, a higher debt percentage and a lower down payment. It’s tempting to get a mortgage from a bank you have an account with, but not all lenders offer the same products. Even if you request a mortgage quote from your personal bank, you should still shop around and see what other banks can offer.

 

Are You Searching whole of market

3. Borrow as much as you can

If you’re approved for £250,000, some people might encourage borrowing at your max and getting your dream house. But borrowing your max is dangerous and could result in being house-poor.

A home purchase can be more expensive than you ever anticipated, especially once you add in the cost of utilities, repairs and home maintenance. And unfortunately, if you don’t leave wiggle room in your budget, you won’t have funds to deal with unexpected expenses. Borrowing less than you can afford can result in buying a smaller house. But on the upside, you’ll have a smaller mortgage payment, and you’ll pay a smaller down payment and fewer closing costs.

4. Always choose the mortgage with the lowest rate

When shopping for a home loan, some may also advise accepting the mortgage with the lowest interest rate. A lower rate saves money because you’ll receive a cheaper mortgage payment and you’ll pay less over the mortgage term. This sounds like pretty good advice. The problem, however, is that the mortgage with the lowest rate may not be the best choice for your situation.

Adjustable rate mortgages typically offer lower rates than a fixed rate mortgage during the initial years. This is an attraction option, and yes, you’ll save money. But an adjustable rate mortgage only has a fixed rate for the first three to seven years, and then the rate resets every year thereafter. So there’s a strong chance that your mortgage rate will increase in the future and drive up your mortgage payment.

This doesn’t mean adjustable rate mortgages should be avoided at all costs. This type of mortgage can work when you foresee moving before the rate resets.

5. Get a short sale if you can’t sell the property

If you’re underwater and can’t sell your house, some people will advise a short sale. Your lender has to approve this transaction, but if approved, you can sell the property for less than you owe. If you’re experiencing financial hardship, going through a divorce, or need to sell the house because you’re relocating for work, a short sale helps you get rid of the mortgage quick. But although a short sale may seem like the answer you’re waiting for, make sure you know the consequences.

Even if your lender approves the transaction, the way the bank reports the short sale on your credit report can have a negative impact on your credit score. The bank isn’t likely to report the loan “paid in full.” Instead, they’ll probably report the loan as “settled for less than balance due.” A short sale is a derogatory item that remains on your credit report for up to seven years. Your credit score will drop, and it can take three to four years before you’re able to qualify for another mortgage.

Unfortunately, some lenders approve a short sale but don’t fully explain the consequences to the borrower. Ideally, you should only consider this as a last resort. If you can’t sell, see if you can wait it out until the market improves, maybe stay in the home or rent it out.

Not all mortgage advice is good advice, so its important that you learn how to distinguish helpful tips from the bad ones.

**Content curated source can be located here: gohomeside.com

Related Post