Mortgage Myths Busted: Get Help from Experts and Save Money
Mortgages are often thought of as hard-to-understand and scary financial tools. The borrowing process can seem full of risks and unknowns, no matter if you’re a first-time buyer or an experienced investor. There are so many lies and false ideas about mortgages that it’s hard to tell fact from fiction. We’ll bust some common mortgage myths and give you expert advice in this complete guide that will help you save money and feel confident as you manage the mortgage world. Talking to a mortgage agent can help you understand things better and make sure you make smart choices.
You need to put down 20%
People often think that you need a 20% down payment to buy a house, which is not true. If you put down 20%, you might be able to avoid private mortgage insurance (PMI) and get a better interest rate, but it’s not required.
What’s Real
There are a lot of loan programmes that require much less than 20% down. For example, FHA loans often only need a 3.5% down payment, and approved buyers can get VA and USDA loans with no down payment at all. A down payment of as little as 3% may be enough for even standard loans.
Help from experts
Talking to a mortgage advisor can help you look at all of your choices and figure out which loan programmes you can use. They can also help you figure out the best way to handle your money so you don’t put off buying a house for too long while you try to save for a bigger down payment.
Truth 2: You need great credit to get a mortgage
A second common belief is that you can only get a mortgage if your credit is perfect. Having a higher credit score can make getting a mortgage easier and lead to better loan terms, but having a few mistakes on your credit report does not mean you can’t get a mortgage.
Reality Lenders has a number of loan programmes for people whose credit isn’t perfect. For example, FHA loans are known for having less strict credit score standards. Borrowers with scores as low as 580 are often approved. Credit scores might not matter as much for some programmes, like those for people who are buying their first house.
Help from experts
Working with a mortgage expert can help you figure out what loan programmes are best for you based on your credit score. They can also help you get better loan terms by giving you advice on how to raise your credit score if you need to.
Myth 3: A 30-year fixed-rate mortgage is always the best choice
Most people who want to buy a house choose the 30-year fixed-rate mortgage, but that doesn’t mean it’s always the best choice. People believe this myth because they think that set monthly payments over the long term are stable and predictable.
What’s Real
There are a lot of different mortgage options out there, and each one has its own pros and cons. For example, the first interest rate on an adjustable-rate mortgage (ARM) might be cheaper than the first interest rate on a 30-year fixed-rate mortgage. With an ARM, you might save a lot of money if you plan to sell or refinance your home before the main rate period ends. In the same way, a 15-year fixed-rate mortgage can help you save money on interest and pay off your home faster, but the monthly payments will be higher.
Help from experts
A mortgage advisor can look at your plans and goals for your money to help you choose the best mortgage option for your needs. Their job is to help you weigh the pros and cons of each choice and figure out how the different mortgage terms will affect your money in the long run.
What is the difference between pre-qualification and pre-approval?
A lot of people think that pre-qualification and pre-approval are the same thing because they are often used to refer to the same thing. But they are two different steps in the mortgage process, and it’s important to know the difference.
What’s Real
Based on the information you provide, pre-qualification is an initial look at your financial situation. In order to give you an idea of how much you might be able to borrow, it does not look into your credit history or finances in great detail. On the other hand, pre-approval is a stricter process. You have to fill out an official application, have your credit checked, and show proof of your income. A letter of pre-approval from a loan lets sellers know that you are a serious buyer.
Help from experts
In competitive markets, getting a pre-approval instead of just a pre-qualification can give you a big edge. A mortgage adviser can help you through the pre-approval process, making sure you bring all the necessary paperwork and improving your chances of getting good loan terms.
Every mortgage lender has the same rates and terms
A lot of people who want to buy a house think wrongly that all lenders offer the same mortgage rates and terms. This myth can make people lazy, which can make them take the first deal they get without looking around.
The Truth: Rates and terms for mortgages can be very different from one lender to the next. Rates and terms can be changed by things like the lender’s screening standards, loan programmes, and the state of the market. You might be able to save a lot of money over the life of your loan if you shop around and compare deals from different lenders.
Help from experts
You can get help from a mortgage expert to compare loan offers from different lenders and understand the details of each one. They can also use their contacts in the business to get you better rates and terms, making sure you get the best deal possible.
Paying off your mortgage early is always a good idea
It might seem like a good idea to pay off your mortgage early in order to lower your debt and save money on interest. This isn’t always the best way to spend your money, though.
What’s Real
You can save money on interest by paying off your mortgage early, but it might not be the best financial move if it means giving up other investment possibilities. For instance, if your mortgage interest rate is low and you can make more money by investing it, it might be better to do that with your extra money than to use it to pay off your mortgage faster.
Help from experts
A mortgage advisor can help you weigh the pros and cons of investing your extra money vs. paying off your debt early. So you can make the best choice possible, they can give you a personalised analysis based on your financial goals, risk tolerance, and market conditions.
If you work for yourself, you can’t get a mortgage
People who are self-employed often think that they can’t get a mortgage because of the way they make their money. This myth comes from the idea that lenders think income from self-employment is uncertain or hard to prove.
What’s Real
Some people who are self-employed may have a harder time getting a mortgage, but it’s not impossible. Most of the time, lenders need more proof of income, like tax returns, bank accounts, and profit and loss statements. Your chances of being approved are much higher if you can show that you have had a steady and sufficient income for the past two years.
Help from experts
Some people who are self-employed need help with the paperwork and making their financial position look its best. A mortgage advisor can help these people. They can also put you in touch with lenders who work with self-employed people, which will improve your chances of getting a mortgage.
This is not true. If you want a lower interest rate, you should always pay points.
When you close on a loan, you pay the seller a fee called mortgage points or discount points in exchange for a lower interest rate. Some people who want to buy a house think that getting points is always a good idea because it lowers their monthly payment.
What’s Real
It can be helpful to pay points to lower your interest rate, but it’s not always the best choice. How long you plan to stay at home and how much money you can pay up front should help you decide if you want to pay points. If you plan to sell or refinance your home in the next few years, paying points might not be worth the extra money because you might not stay in the home long enough to get the money back from the lower interest rate.
Help from experts
A mortgage advisor can help you figure out when you’ll break even on paying points and if it makes financial sense for you based on your goals and current financial state. They can also give you ideas on how to handle your mortgage payments and interest costs in other ways.
Myth 9: If your current rate is low, you shouldn’t refinance.
A lot of borrowers think that refinancing is only worth it if interest rates have gone down a lot since they got their mortgage. This lie might keep them from looking into other possible benefits of refinancing.
What’s Real
Even if your interest rate is already low, refinancing may be a good idea. You may be able to shorten the length of your loan, move from an adjustable-rate to a fixed-rate mortgage, or use your home equity to make improvements or consolidate your debts. The important thing is to think about the pros and cons of refinancing as a whole.
Help from experts
A mortgage advisor can look at your present mortgage and your finances in general to help you decide if refinancing is a good idea. They can help you figure out how much you might save and how much it will cost, so you can make an informed choice.
If you have a lot of debt, you can’t get a mortgage
You might have a harder time getting a mortgage if you have a lot of debt, but you won’t definitely be turned down. People who want to buy a house often don’t even apply for a mortgage because of this myth.
The Truth: Lenders look at your debt-to-income (DTI) ratio when they decide whether to give you a mortgage. A high DTI ratio may be a bad sign, but the DTI standards for many loan programmes are not rigid. Also, even if you have a lot of debt, lenders may still accept your application if you have good credit, a stable income, and enough money for a down payment.
Help from experts
A mortgage expert can help you figure out what your DTI ratio is and how to lower it if needed. They can also help you find loan programmes that are better for people with more debt, which will improve your chances of getting approved.
Conclusion
To sum up, busting common mortgage myths is important for making smart financial choices. Talking to a mortgage expert is a great way to get through the complicated mortgage world. A mortgage planner can help people save money, get better loan terms, and reach their goal of owning a home by clearing up any myths and giving them expert advice. Don’t let myths guide your mortgage trip; talk to experts and learn as much as you can to make the best choices for your future finances.
