The home mortgage world can be confusing, with all the terms, regulations, special considerations, and various lenders out there. Because of the number of variables, myths often run rampant and get interpreted as factual information. Here, we break down the seven most common mortgage myths, separating fact from fiction, all so you can get the clarity you deserve.
Get A Free Mortgage QuoteMortgage Myth 1: You Can't Afford To Buy A Home
False! Typically, you can afford a mortgage if you can afford to make your monthly rent payments on time.
This is, of course, dependent on the city you live in. For example, rent in Los Angeles won't compare to a mortgage payment in certain parts of the city or other high-rent states or cities. But the overall takeaway is that the dream of owning a home is more attainable than most people realize. Don't sell yourself short or doubt that you can afford a mortgage.
Mortgage Myth 2: Find A Home First, Then Worry About Mortgage Financing
Don't get talked into house hunting before you know how much house you can afford. Yes, it is very tempting to just pop on the internet for a few minutes and check out the market. Thanks to major technological advancements, you could virtually walk through a living room in a home two states away.
People often fall in love with homes that are out of their budget and then spend time figuring out how they can afford the mortgage on them rather than finding one that more closely aligns with their financial situation. Living outside of your means is a dangerous game to play. Instead, make sure you are setting yourself up for success.
Start shopping around for lenders and different mortgage financing options, as there are many varieties to explore. It's much easier to find a home when you better understand your budget and the mortgage world in general.
Mortgage Myth 3: Shopping Around For Lenders Will Severely Damage Your Credit Score
The fact of the matter is that a lender will need to run a credit check on you to see if you qualify for a mortgage. Otherwise, how can they discuss your specific mortgage and loan options? The common misconception here is that every single lender you go to will run a credit check and that, over time, all these will add up and severely impact your credit standing. And what do you need to receive competitive mortgage rates? Good credit.
Understanding how credit bureaus work and doing your homework before allowing one lender to do a credit check is important. Credit bureaus can tell if you're shopping around for the best mortgage rates and will typically bundle those credit checks into one inquiry. That inquiry will slightly impact your score but nothing detrimental! Where people go wrong is they aren't prepared, and those credit checks get spread out over a few weeks.
Generally speaking, these credit checks will be counted as one inquiry if they are all done within 14 days of the first one. This window varies and could be up to 45 days, so again, do your homework before getting started.
Mortgage Myth #4:Mortgage Pre-Qualification Is The Same As Pre-Approval
Most of us have pre-qualified for something, usually a credit card. That doesn't mean that the company will simply hand over the said card. Understanding the difference between mortgage pre-qualification and pre-approval is vital.
Mortgage pre-qualification: Pre-Qualification indicates that you possess the creditworthiness lenders seek. This is an early step in the home purchase journey and is a very rough estimate of the amount you can borrow. Mortgage pre-qualification helps shoppers begin the house-hunting process.
Mortgage Pre-Approval: Pre-approval is more definitive than pre-qualification. Mortgage pre-approval means you have completed a mortgage application that the potential lender has evaluated. The mortgage lender will provide you with a pre-approval letter, which provides information on the specific terms and amount you can borrow.
Mortgage Myth #5: Getting Pre-Approved Guarantees A Mortgage Loan
Yes, getting pre-approved for a mortgage loan is a good thing, but it is not a guarantee that the lender will provide you with a loan. If you were to go through the underwriting process, you'd likely be approved.
So why bother with mortgage pre-approval at all? Pre-approval is a very helpful step in the home purchase process, as it shows sellers that you're serious. It also makes real estate agents more inclined to work with you, as again, you come across as a serious buyer who has done your research. Don't underestimate the power of the mortgage pre-approval!
Mortgage Myth #6: You Need An Impeccable Credit Score To Be Approved For A Mortgage Loan
Your credit score is a crucial factor in the home mortgage process, which instills panic into potential homebuyers who may have less-than-perfect ratings. Look at it like this: your credit score helps lenders determine the risk they take by lending you money. So while having a high credit rating is always beneficial, a lower score doesn't necessarily exclude you from obtaining a home loan.
A sub-prime credit score shows more risk for the mortgage lender and, in turn, will most likely be accompanied by fewer choices and higher interest rates than someone with a better rating. If you have a credit score below 579, consider exploring your Federal Housing Administration (FHA) loan options.
Mortgage Myth #7: You Need 20% Down To Buy A House (And It Covers All Upfront Costs)
We've all heard this: you must put 20 percent down on a house. In today's world, that's just not true. In fact, the average down payment amount for a first-time homebuyer is just seven percent! Most people want to put a higher percentage down, which could mean a smaller loan amount and lower monthly mortgage payments. However, don't worry if your savings just aren't there yet. There are still plenty of home mortgage options available to you.
What throws people off is thinking that the whopping 20 percent you put down covers all of your upfront costs. Remember the terminology and pay close attention to your mortgage loan terms. In many cases, the closing costs are a separate payment. Closing costs include the fees and taxes of handling the loan and processing the real estate purchase paperwork. This is all specific to the type of loan that you have. Ensure you're earmarking some of your money for the closing costs rather than funneling it all into the down payment.
Go Into The Home Mortgage Process Informed & Ready To Buy!
There is a lot of misinformation out there and even more, misconceptions when it comes to home loans. Make sure you're not falling prey to common mortgage myths, and when you are ready to shop for a home loan, turn to Fetcharate, where it's easy to find and compare mortgage rates with dedicated lenders ready to fight for you and help you find the best rate to date!
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