Mortgage Loans

For most people, buying a home is the biggest purchase they’ll ever make. Bearing that in mind, your choice of mortgage lender is a pretty important decision. You need a lender that you can trust to work for you—not someone whose only interest is the money they earn from signing you up. So how do you spot a bad mortgage lender?

One of the most obvious warning signs is a lender who tries to convince you to borrow more money than you can afford, or more than you want to. They might try to press you into getting a higher risk loan that lets you borrow more (such as an interest-only mortgage)—and sure, that means you could afford a bigger house…but it also means that you run the risk of defaulting on a monthly payment. A lender who pushes you to borrow over your limit is only trying to increase their commission, and they’re not looking out for your best interests.

An interest-only mortgage is one in which you pay only interest over the life of the loan. The interest-only period is typically one to five years (and up to ten years in some cases), and after that time, the borrower has two options—to pay the balance in full, or to convert to the interest-only loan to an amortized loan (a conventional loan in which you pay principal and interest).

When you take out an interest-only loan, you’re making a potentially risky move. There are some great advantages that can make it a very worthwhile option, but there are pitfalls, too—and if you’re not prepared for them, you could find yourself in financial trouble. As with any other large financial transaction, it definitely pays to do your homework.

If you’re trying to buy property in a hot market, you’ll increase your chances of getting the home you want if you have a pre-approved mortgage. And pre-approval also saves you a lot of time at closing—when you’re pre-approved, about 90% of the mortgage application process is already taken care of. Being able to close quickly is a great advantage if the market is competitive. In a slow market, pre-approval is a great bargaining tool, because it lets the seller know that you’re a serious buyer, and that you’re not going to back out of the deal due to problems with the loan—this can help you negotiate a good price on the property you want. Regardless of the state of the market, pre-approval gives you an advantage because when you start looking for a property, you already know exactly how much you can afford to spend.