In the hit TV show House, Dr. Gregory House says, "Everyone lies." Dr. House may not be a real estate agent, but he is a brilliant doctor, and he has correctly diagnosed one problem with the home loan lending industry. A lot of lenders and brokers won't think twice about lying to make more money.
Here are some myths and half-truths that you should watch out for when looking for a home loan.
- You should borrow money for a short time.
"Do you know a cheap way to buy this house?" Your broker asks in a barely audible voice. "Today, you get a short-term loan. Then, when your income goes up, you get a new loan. I'm telling you, this deal will save you a huge amount of money."
When your broker gives you this line, you should be scared. Be very afraid. "You should get a short-term loan" is one of the creative ways that brokers and lenders sell adjustable-rate mortgages, interest-only loans, and flexible-payment loans, which can be very dangerous. No one can tell how interest rates will change for home loans. Good if they fall. You might be able to save the huge amount of money that your broker promised. But what if the rates of interest go up? Your house payments will give you a headache for a very long time. Then, short-term, interest-only, and flexible-payment loans may make it hard for you to build equity in your home. If prices went down, you would pay more for your house than it was worth.
The best thing to do would be to get a loan with a fixed rate. Get a loan that won't change as long as you plan to own your home.
- This is how much you can pay.
Do not get this wrong. You are the only person who knows how much money you have. Your agent, broker, or lender may have done a lot of home loans, but they don't know how much money you have or how you spend it. So, don't listen to anyone who tells you how much you can pay back each month for the next five years or so. Brokers who aren't honest will try to force you to take out a bigger loan. After all, their pay goes up the bigger the loan is.
When figuring out how much your housing should cost, it's a good idea to keep your total payments, which include your mortgage, property taxes, and homeowner's insurance, to no more than 25% of your gross income.
- I know the perfect person to inspect your home.
If a home inspector is really good at what he does, a home loan agent may recommend him. Or, they might try to give him to you because he doesn't talk much. The best way to make sure your inspector is looking out for your best interests and not your agent's is to choose someone from a self-regulating inspection group like the American Society of Home Inspectors.
Giving out home loans is a very big business. Someone else makes money from the money you pay. Carefully consider your options to avoid becoming someone else's milk cow. Even if Dr. House is wrong and not everyone lies, there will always be liars in the world, especially in the home loan lending business.
