Well-meaning advice can often be bad advice when getting a mortgage

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Published Date 7/28/2023

When it comes to anything real estate or mortgage related, just like everything else, there is good advice and bad advice. Buying a home and getting a loan to achieve that is a daunting prospect, which explains why so many people seem eager to lean in and offer their own wisdom (or lack of it), good intentions notwithstanding.

The thing is, they could be dead wrong. So Realtor.com’s Lisa Johnson Mandell decided to dig up some of the worst mortgage advice people give so that you can simply nod your head appreciatively and then do your own research.

When someone says it’s not necessary to get pre-approved for a mortgage because you’ve just barely begun shopping for a home, don’t listen to him or her. True, mortgage pre-approval is no guarantee you’ll get approved for a mortgage later, but it’s kind of like proving you can read and write before someone offers you a job. While a pre-approval might not be “official,” it will help you avoid the heartbreak that comes from falling in love with a house you can never buy. And it can give you an edge if there are multiple offers for the same property. A seller will feel more confident selecting a bid from a pre-approved buyer rather than a person who hasn’t even begun the process, and you can make an offer with confidence that you can afford the home.

Another bit of bad advice? Get your mortgage with the bank you already do business with. Since you have an existing relationship with it, it’ll give you the best rates, right? Wrong. While you may want to see what programs your current bank offers, just as you’re shopping around for a home, shop for a loan.

“Even though the big bank where I keep my checking and savings accounts claims they’ll give me better service and an easier application process, that may not always be true,” says real estate attorney and investor Albert Tumpson. “I’ve found more favorable terms with other venues. Always go with the most favorable terms.”

If anyone ever tells you not to bother reading the fine print on anything real estate related, Mandell advises a polite smile only. There is no such thing as a “standard” contract. There is YOUR contract, and fine print contains some clauses that could cost you serious money. So cool your jets and take the time to go over every last word with a fine-toothed comb before signing on the dotted line. Mandell tells the story of a borrower who was astounded when her lender asked her to sign a mortgage contract involving hundreds of thousands of dollars without “bothering” to read the details. But after taking several hours to go over the contract, she found several items to dispute and a number of others that needed clarification.

How ‘bout those interest rates and monthly payments? “Always go with the lowest interest rate” is bad advice because lower interest rates can have all sorts of strings attached—often in the form of an adjustable-rate mortgage. While ARMs are not always a bad thing, be on the alert when someone suggests an interest-only ARM, says mortgage expert Shant Khatchadourian. “Interest-only ARMs can result in significant payment shock, especially if rates increase down the line and amortization kicks in.”

And if anyone tells you to borrow as much money as you qualify for, don’t listen. It’s always wise to live slightly below your means since you never know when life might pitch you a financial curveball, such as a layoff or medical problem. “You can qualify for monthly payments up to 50% of your income these days,” says Khatchadourian. “But half of your gross income seems like quite a bit for most people, especially when they factor in taxes and insurance.”

Realtor, TBWS

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