Some Mortgage Myths

If you're in the market to buy a home, it must be remembered that mortgage lending is a business, an astoundingly large-money business. Lenders are in there for one only purpose – to sell money to you. Their profit can come not only from your monthly repayment with interest, but from a myriad of fees and program options that can be added to their offerings. And though the lender smiles and is as sweet as candy, always be mindful that his or her job is to get you to buy a loan package. They only get paid if you take the loan.

Certainly the overwhelming majority of lenders and lending institutions want to do the best job that they can for you their customers, but in the end you have to accept the fact that your interest is best served in your own hands. You must be educated as well as savvy in your financial dealings. Assume nothing, and question everything. And when shopping for a loan, be wary of the following mortgage myths:

Myth: You can negotiate a better loan.

The truth: In today's lending industry you can only truly negotiate loans in cases where you find a seller who owns property free and clear and is willing to carry back a first mortgage. Just as rare is finding a lender that maintains a loan portfolio; this entity is able to tailor their loan programs to meet specific needs or requests. More than ninety-five percent of the loans that are available are offered by large national lending institutions who sell their loans to the secondary market. A reputable loan consultant can help you to find a program that best fits your needs, but he or she cannot significantly change the terms of that loan. To present the illusion of negotiation, lenders will give you choices with slight variations, taking a little something away here but adding it back over there, such as allowing you to lower your interest rate by paying more in upfront fees. Your most important skill, therefore, should be the ability to search for the best deal, and not necessarily negotiation.

Myth: The loan consultant will look out for you.

The truth: The loan consultant must really look out for the lending institution and himself. Akin to our example above, the loan officer or broker only gets paid if he or she successfully sells you a package. And they're paid by the financial institution whose product they sell, connecting them to the lender and not to you. Now, you may have known this person for years, but that doesn't change the fact that they have to eat as well. But don't misunderstand. There are many good lending consultants, and their services are very valuable; they can help you along every step of the way in the mortgage process. Just remember that it's your responsibility to educate yourself on things that pertain to you. Do you really want to leave your financial well-being squarely in the hands of someone else for potentially the next thirty years if you don't have to? Probably not.

Myth: 1) Find a house. 2) Negotiate the price. 3) Get a loan.

The truth: The reverse is the best sequence to take. First, get a preapproval commitment from a lender. It saves time by letting you know beforehand exactly how much house you can afford. Then you can search for the right house, confident that when you find it you'll be in a much stronger negotiating position because the loan commitment effectively turns you into a "cash" buyer. It also shows that you're serious and will be able to close quickly.