Mortgage Advice You Shouldn’t Listen To
A mortgage approval is a giant leap toward homeownership and achieving your American dream. And while people in your inner circle might be excited for this chapter in your life, they might not give the most sound financial advice.
Many mortgage options are available to you. Keep in mind, however, mortgage solutions that work for others might not work for you. So it’s important to get your advice from a mortgage professional who can answer your questions and help sort through misconceptions.
Here’s a look at four pieces of mortgage advice you shouldn’t listen to.
1. Don’t buy a house unless you have a 20% down payment
Your grandparents or parents might preach this advice if they purchased their homes with a 20% down payment. But times have changed, and this standard rule no longer applies.
In all fairness, a 20% down payment reduces how much you finance and you’ll avoid private mortgage insurance—so the advice, while dated, isn’t completely outrageous. Even so, putting off a home purchase due to lack of a 20% down payment could mean years of renting when you could be owning.
Cherry Creek Mortgage offers an abundant selection of mortgage resoures and solutions, including loans requiring as little as 3.5% and 5% down. These mortgages make it possible to purchase sooner and increase your personal net worth.
2. A fixed-rate mortgage is the best option
A fixed-rate mortgage offers predictable monthly payments and stability because your interest rate and mortgage payment never increase. But if you’re not planning to be in a home for years, an adjustable-rate mortgage can make more sense.
Adjustable-rate mortgages have fixed rates for the first three, five or seven years, and then the rate resets every year thereafter. During the initial years, adjustable-rate mortgages usually offer a lower rate than fixed-rate mortgages, which can save you money. Give us a call to discuss your adjustable-rate options, and then decide if this is the right mortgage for you.
3. A pre-approval guarantees a loan
People who don’t know much about mortgages assume a pre-approval guarantees a mortgage. However, a pre-approval simply means you’re “likely” to get a mortgage based on your income and credit, but nothing is finalized until closing. So it’s important to maintain good credit after you’re pre-approved, and your income and employment situation shouldn’t change. In other words, don’t charge up your credit cards or make expensive purchases, and definitely don’t quit or change jobs until the underwriter clears the loan for closing and you’ve signed your mortgage paperwork.
4. Buy as much house as you can afford
If you’re pre-approved for a sizable amount, some people might encourage you to buy the most expensive house you can afford. This is the worst piece of financial advice you can receive.
At the end of the day, you don’t want to be cash strapped or house poor after moving in. You’ll likely need to buy appliances, furniture, decorate the house, and unexpected costs always arise with homeownership. To put it plainly, you need a cushion. So while people might urge you to purchase your forever home, there’s no harm in buying less than you can afford. The less you spend on a monthly payment, the easier it’ll be to recoup your savings account and prepare for emergencies.
The wrong mortgage advice can potentially jeopardize your home loan. If you have questions, about what you should or shouldn’t do, don’t hesitate to contact us. We can provide reliable mortgage information related to credit scores, income, mortgage options and more.