When it comes to homebuying, there are plenty of people eager to provide assistance.
Unfortunately, much of what is said may be based on outdated facts, half-truths, or incorrect assumptions. Taking the wrong advice can cost you time, money, and chances.
Here are some of the most prevalent mortgage myths debunked to help homebuyers buy with confidence.
Myth 1: Pre-Qualified Is The Same As Pre-Approved
Many first-time home buyers make the mistake of mixing pre-qualified and pre-approved. We cannot fault them.
Some unethical lenders go out of their way to suggest that these two concepts sound identical.
However, when it comes to mortgages, there is a significant difference between getting pre-qualified and getting pre-approved.
You may get pre-qualified in minutes by answering a few simple questions about your financial condition.
However, pre-qualification means little to sellers or trustworthy lenders.
Being pre-approved is a far more extensive vetting procedure and will have a substantial impact on whether you qualify for a mortgage.
Myth 2: Pre-Qualification Guarantees The Loan Amount
People get pre-qualified for mortgages since it is a faster procedure and gives you an estimate of your loan amount.
However, it is important to understand that you will not be formally entitled to receive that amount at this point.
Banks will only do a thorough review of your finances during the pre-approval process.
They will determine whether you are better qualified for a specific loan amount from the bank. Even so, lenders reserve the right to recheck your credit before finalizing the mortgage.
Any further unfavorable information about your financial information may still damage, or even cancel, your pre-approval status.
Bottom line, you won’t have any substantial sum until the mortgage deal is closed.
Myth 3: You Need A 20% Down Payment
If you’ve been waiting to save 20% of the purchase price of a home, we’ve got some excellent news. It is not a must.
Sure, putting down 20% helps you avoid paying for private mortgage insurance (PMI), but it’s not your only option. In fact, several lenders provide plans with down payments as little as 3% or even zero.
If you qualify for a loan from the United States Department of Veterans Affairs (VA) or the United States Department of Agriculture (USDA), you might purchase a home with no down payment.
Buyers may have more alternatives than they know thanks to numerous down payment assistance programs that can cover both the down payment and the closing charges.
Contrary to common belief, many of these programs do not require you to live in specific areas or even have low income.
Myth 4: A 30-Year, Fixed-Rate Mortgage Is Best Loan
The fixed-rate 30-year mortgage is among the most popular home loan alternatives, and with good reason.
This sort of mortgage often provides consistent and predictable monthly payments. However, that does not imply that it is always the best option for everyone.
If you want to save money on interest and can afford somewhat higher monthly payments, a 15-year mortgage may be a better option.
These loans often have lower mortgage interest rates than 30-year loans. Over time, you’ll be paying much less in interest and accumulating equity faster.
Alternatively, adjustable-rate mortgages (ARMs) may be suitable for buyers who intend to move or refinance before the rate adjusts.
ARMs sometimes begin with a lower initial rate, making them appealing for short-term homeowners or those anticipating changes in their financial situation.
Myth 5: The Only Out-Of-Pocket Expense That Should Worry You Is The Down Payment
Another popular (and costly) misconception among first-time homebuyers is that the down payment is the only upfront cost.
That is, they do not consider closing expenses, which are fees imposed by the lender and buyer to complete the transaction.
These costs will account for approximately 1-2% of the asking price.
To avoid being surprised by these “hidden fees,” ask your lender if the closing charges will be charged to you or rolled into your mortgage.
Myth 6: Searching Around For Other Lenders When Applying For A Mortgage Could Adversely Affect My Credit Score
While it may appear dishonest, looking around while applying for a mortgage is financially prudent.
During the mortgage application process, several lenders will likely pull your credit ratings.
If you apply for another sort of loan, such as a personal or vehicle loan, within this 30-day period, you risk harming your credit score.
Myth 7: Don’t Pay Points To Buy Down A Mortgage Rate
You’ve probably heard that paying points, also known as lowering your interest rate, isn’t worth it. However, this depends on your financial circumstances.
Paying points for discount can lower your interest rate upfront, resulting in a cheaper monthly payment and savings throughout the life of the loan.
Typically, one point costs roughly 1% of your loan amount and reduces your mortgage rates by a quarter of a percent.
This method is especially useful in today’s market, where higher loan rates might impact affordability. Also, in most situations, the cost of the points is tax deductible.
Myth 8: Pay Off Mortgage As Early As Possible
We understand it sounds like a good plan, which is why so many first-time homebuyers hurry to pay off their mortgage early.
However, you will only be lowering your mortgage balance.
In the long run, lowering your debt does not necessarily imply instant equity.
You could be better off utilizing your additional money to start a new business or to save.
Myth 9: You Shouldn’t Ask Sellers To Help Pay Closing Costs
It is a common myth that you cannot request that sellers assist with closing costs, particularly in a competitive market. They may be concerned that if they make an offer, the seller would reject it.
While sellers dominated the recent housing boom, the market is moving, particularly in some parts of the country.
If a home has been on the market for a time, sellers may consider assisting with a buyer’s closing costs to secure the deal.
Myth 10: You Need A Perfect Credit Score To Qualify For A Loan
Even if you don’t have perfect credit, you can still qualify for a mortgage if your score is at least 620.
Furthermore, FHA loans are available with credit scores as low as 580.
However, it is still preferable to obtain the highest possible credit score before considering a mortgage.
The Bottom Line For Mortgage Myths
As an informed homebuyer and homeowner, you must understand the truth behind these popular mortgage myths.
Knowing the truth is an effective way to avoid mortgage fraud and overpaying on your property.
At United1Mortgage, we want to help you select the right mortgage plan for your needs by providing you with the resources you need to be a wise home buyer.
If you have any other questions about other mortgage myths, we will gladly answer them.