Myths About Mortgage Loans
One of life’s significant events includes buying a home. It is a process that includes many important decisions. You’ll have to find the right home and decide on the home loan option that is suits your situation best, and this requires having the correct information, so you are always on the right path.
For first time home buyers, mortgage loans can be confusing, and they often hear many myths about mortgage loans that often aren’t the truth. In this article, you will discover seven of the most common myths about mortgage loans and the mortgage industry and unravel the facts behind them to help you make the right purchase.
Myth 1: You need to make a 20% down payment of the total cost to purchase a house
Many people believe they can’t buy a home unless they make a 20 percent down payment. However, this is not true. You can obtain a mortgage from the Federal Housing Administration (FHA) for as low as three and a half percent, and other government-backed loans require 0% down payments. These FHA loans are available to everyone, whether first-time homeowners or a person with a patchy credit score.
The 20% myths about mortgage loans originates from the private mortgage insurance (PMI) requirement from mortgage lenders. PMI is a form of protection that compensates your mortgage lender should you default on your loan. It is this PMI requirement that makes many financial expert advice having 20% down before buying a home. VA loans and USDA loans don’t require PMI.
Myth 2: Your interest rates reflect the real financial cost of your mortgage.
While your interest may be a part of your mortgage, it doesn’t include mortgage insurance and other fees you have to pay. The closest figure that reflects the cost of your mortgage is your annual percentage rate (APR).
Myth 3: The best option is a 30-year fixed mortgage
This is true if you plan on living in the house for a long time. But if you plan on living in the house for a couple of years, let’s say five to ten years, it will be best to take out a loan with a fixed rate for that time frame. A longer term might mean a higher interest rate than a shorter term such as a 20 or 15 year.
Myth 4: All lenders are required by A specific law to charge the same fees for appraisals and credit reports
No such laws that required lenders charge the same fees exist. Some lenders may waive fees as a signing bonus, making them more appealing, while other lenders charge higher non-negotiable fees. So do your due diligence to compare fees before settling on any lender.
Myth 5: Banks, where you have a checking account, provide the best mortgage interest rates
While some banks may offer their customers discounts, this is not a common practice among lenders. Don’t just accept whatsoever your bank provides; instead, compare quotes of multiple lenders. We will find for you the mortgage rate and terms that work best for your finances.
Myth 6: You must go through lenders who you are pre-approved with to acquire your loan.
Because you have a pre-approved loan with a specific lender doesn’t mean you can get a mortgage with them. What it states is only how big the loan the lender can fund you is. They calculate this amount by verifying your income and using a credit check that the lender attains when you apply for a loan. Ensure you get at least three loan quotes from different lenders before deciding to go ahead with a mortgage.
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Myth 7: When you obtain a loan with your spouse, credit reports are weighted equally by lenders to determine interest rate
When you apply for a mortgage loan with your spouse, lenders will obtain the credit reports of both of you from the three credit reporting agencies – Equifax, Experian, and TransUnion. Then, they take the middle score from each agency and get rid of the highest one. The lowest two scores then determine the interest rate of your mortgage. This means that the person whose credit score is lower will have the most impact on your interest rates.
There are many myths about mortgage loans, and misconceptions about mortgage loans flying around today that people believe and peddle, making the approval process confusing. The common one being that you can’t buy a home until you put 20% down or if you are in debt. However, you can purchase your home without making any down payment and qualify for a loan while in debt. Research when applying for a loan and the whole process will be a breeze.