There have been myths and rules on mortgages we have all heard.  Listed below are many of them.  Look at each one while looking for a mortgage and keep them in mind.  They will lead you to better decision on choosing a mortgage.

Here are some mortgage advice that is simply not true (or for the most part not true).  Yet, these rules are in common use.

¨ Don’t prepay your mortgage if your investments will earn a return that’s greater than your mortgage interest rate.

¨ Bankruptcy ruins your credit.

¨ Don’t buy a home unless you expect to be in it for at least four or five years.

¨ Fannie Mae/Freddie Mac (the largest suppliers of mortgage money in the United States) set their maximum qualifying ratios at 28 percent (front ratio) and 36 percent (back ratio).

¨ Never accept a mortgage with a prepayment penalty.

¨ Risk-averse borrowers should avoid adjustable rate mortgages (ARMs).

¨ Never use a land contract.

¨ A good negotiating tactic with sellers is, “You name the price; I’ll name the terms.”

¨ Always get pre-approved for a mortgage before you begin to shop for a home (half-truth).

¨ Borrowers with low FICO credit scores are condemned to paying high interest rates.

¨ It’s extremely unlikely that you’ll find a fixed-rate mortgage that you can assume.  (Absolutely false.  During the past five years, lenders have issued millions of such loans.)

¨ Most borrowers should get a 30 year fixed rate loan.  (Fortunately, increasing borrowers realize the poor quality of this advise.)

¨ Interest rates must go up as we’re now at (or near) historically low rates.

¨ If you don’t put a least 20 percent down, you’ll have to buy mortgage insurance.

¨ Talk with a lender.  The lender will tell you how much house you can afford to buy, and the amount of the mortgage for which you will qualify (one-quarter truth).

Above is from the book “106 Mortgage Secrets All Homebuyers Must Learn – But Lenders Don’t Tell”, by Gary, W. Elderd, PHD,  John Wiley & Sons, copyright 2003.  This book is written for the consumer not the banker, lender, or broker.  Steel Blue 1 highly recommends it.

Mortgage

Myths