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COSTLY MISCONCEPTIONS EVERY CONSUMER SHOULD KNOW BEFORE APPLYING FOR A LOAN

Costly Misconception #1
If I choose the best interest rate, I’m going to get the best deal.

This is completely false. Interest rate is only one component of the loan program. Make sure you fully understand the terms of the loan, especially if it is an adjustable rate mortgage. If you do shop rates, make sure you are comparing APR between loan programs and that the APR includes all of the pre-paid finance charges. Focus equally on the interest rate and the finance charges you are paying to buy the loan. Watch for pre-payment penalties, they can sometimes carry heavy penalties if you sell your home or refinance within 1 to 2 years.

Costly Misconception #2
I don’t want to use multiple lenders because they will run my credit score multiple times and my credit score will then be negatively impacted.

There are new credit bureau rules that allow your credit score to be checked as many times as you’d like within a two week period and it will only count as one inquiry. In addition, the score ignores all mortgage inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. If you do not have a trusted lender or loan officer, get APR estimates from three different lenders.

Costly Misconception #3
I’m not being charged a loan origination fee so I’m getting a better deal.

Remember...APR, APR, APR. The lender is still charging you but the fee may show up somewhere else on the GFE or be buried in your interest rate.

Costly Misconception #4
I don’t want to give out my tax information, income statements or bank statements because the IRS might find out how much money I really make.

First, lenders don’t disclose this type of information to the IRS. Second, as a general rule, the more information and documentation you provide, the better your interest rate will be. There are loans that don’t require any documentation, just a credit score, but these will require more money down and have a higher interest rate because the lender is taking more risk.

Costly Misconception #5
My friend referred me to this loan officer, so they must be good.

I am the first to tell you that a referral is by far the best way to find a reputable loan officer, however, don’t forget that your friend may have been ripped-off and doesn’t even realize it. Make sure you ask them the questions I recommend, it could save you thousands of dollars and countless hours.

Costly Misconception #6
Working with a bank is always safe.

This is not true. Banks are limited to the loan programs their institution offers and the programs may or may not be competitive or may not fit your personal situation. Banks may try to force you into a program simply because they have limited options. I recommend working with a mortgage broker that gives you access to multiple lenders. A broker is paid to ensure you find the best loan program to fit your financial scenario.