“Everybody lies,” deadpans Dr. Gregory House of the hit TV series, House. Dr. House may not be a real estate agent; but he is a brilliant doctor, and he has aptly diagnosed one ailment of the home loan lending industry. Many lenders and brokers will not think twice about lying to get bigger commissions.
Here are some of the untruths and half-truths to look out for when considering home loan lending options.
1. You should get a temporary loan.
“You know how you could get this house cheaply?” Your broker asks you in a voice only above a whisper. “You get a temporary loan today. Then, when your income is higher, you refinance. I tell you, your savings from the transaction will be humongous!”
When your broker starts giving you this line, be afraid. Be very afraid. “You should get a temporary loan” is one of the creative ways some brokers and lenders peddle adjustable-rate mortgages and their potentially lethal cousins – interest-only and flexible-payment loans. In home loan lending, no one can predict the movement of interest rates. If they drop, good. You just might be able to get the humongous savings your broker promised. But what if interest rates shoot up? Your house payments will be giving you nosebleed for years and years to come! Then, too, temporary, interest-only, and flexible-payment loans may prevent you from building home equity. Should prices drop, you would end up paying more for your house than what it’s worth.
The best course of action for you would be to get a fixed-rate loan. Get a loan that will remain fixed for as long as you plan to be a homeowner.
2. This is what you can afford.
Make no mistake about this. You are the only one who knows what you can afford. Your agent, broker, or lender may be old hands at home loan lending; but they do not know your bank balance or your spending habits. So, do not let anyone tell you how much monthly repayment you can keep making for the next five years or so. Unscrupulous brokers will try to railroad you into getting a bigger loan. After all, the bigger the loan, the higher their commission.
In estimating a reasonable housing cost, it’s a wise idea to limit your dues, inclusive of mortgage, property taxes, and homeowner’s insurance, to 25% of your gross income.
3. I know just the right home inspector for you.
In home loan lending, agents may recommend a home inspector because he’s truly good at what he does. Or, they may try to foist him in you because he keeps his mouth shut. The best way to ensure your inspector has your interests – not your agent’s – at heart is to select someone from self-regulating inspection bodies, such as the American Society of Home Inspectors.
Home loan lending is a huge business. The money you pay is money that someone else makes. Avoid turning into somebody else’s milking cow by carefully considering your options. Not everybody may lie as Dr. House claims, but the world will never suffer from a shortage of liars – particularly from the home loan lending industry.