The process of getting a mortgage is difficult and it’s especially stressful due to all the misinformation and bad advice being peddled across various nooks and crannies of the internet.
Facts and Myths about Mortgages
To make your work easier and prevent your time and resources from being wasted, here are some facts and myths about mortgage process and the actual truth behind them.
01. Mortgage Myth: Once You’re Pre-qualified, Your Loan is Guaranteed
Prequalification and preapproval are terms that people wrongly use interchangeably.
Prequalification is an estimate of your assets and income which you submit to a lender to determine the mortgage amount you may be approved for.
Only a basic review of your finances is done and as a result, your loan is not guaranteed because the information you provided hasn’t been verified.
A preapproval, on the other hand, is when the lender analyzes your financial and credit background (after you complete a mortgage application) to verify the information that you provided in the prequalification stage.
This is where you‘ll discover your interest rate, estimated monthly payment and the maximum amount of mortgage you qualify for. However, your loan isn’t guaranteed as lenders, such as this lender typically perform a final financial review to check if there are any changes in your credit before your mortgage closes.
02. Mortgage Fact: The Longer Term Mortgages, the More Interest You’ll Pay
Many people opt for longer term mortgages because they’ll get to pay a smaller monthly repayment fee, have greater flexibility and more time to repay their loan.
However, most people aren’t aware that longer term mortgages have a higher interest rate overall. As a result, some people who aren’t equipped to bear these higher interest rates are unable to pay their loan back.
Before choosing a type of mortgage, consider your financial situation and your long and short term needs. Long-term mortgages might be popular but it’s not the only option that exists.
There are other types of mortgages that will likely be more suitable for you based on your financial situation. For instance, someone who wants to buy a new property while selling their current property would find a short term loan suitable.
03. Mortgage Myth: You Have to Pay a 20% Down Payment
Most first time buyers pay a 6% down payment and loans like the FHA loan allow a payment of as little as 3.5% while some government backed loans like the VA loan require no payment. But, before paying your down payment, you first need to consider the amount that’s suitable for you.
Paying too much money upfront can drain your finances while paying too little will cost you more money in the long run so how do you determine the right amount to pay?
It depends on your savings, income and budget. And, you need to factor in costs like closing costs, moving expenses and other related bills.
04. Mortgage Myth: You Need a Perfect Credit Score to Get a Mortgage
Having a good credit score makes the process of buying a house much easier since the higher it is, the higher the possibility of qualifying for lower mortgage interest rates. However, it doesn’t mean that those with a lower credit score can’t get a mortgage.
There are a lot of great options for those with lower credit scores. People with a minimum credit score of 500 are eligible for FHA loans.
USDA loans have an even lower credit score requirement than conventional loans. And, if you’re a veteran or the spouse of a deceased one, VA loans officially have no minimum credit score requirement. However, the credit score requirement may vary depending on who the lender is.
Also, other factors such as the size of your down payment, income, savings and debt- to-income ratio can determine if you qualify for a mortgage.
Hope you find this article helpful for you to buy your dream home. We have written other article on mortgage which will also helpful for you. Refer:
10 Tips for First-Time Home Buyers
