Top 10 Mortgage Myths Debunked
It’s no secret that the home-buying process can be daunting. There’s a lot to think about between saving for a down payment, shopping for the perfect property, and securing a mortgage. And with so much on the line, it’s no wonder that myths about mortgages abound. From common misconceptions about down payments to talks about credit scores, we’re here to set the record straight. So without further ado, here are the top ten mortgage myths debunked.
Myth #01: You Need a 20% Down Payment to Buy a Home
This is probably the most common myth out there when it comes to mortgages. In the past, most lenders required borrowers to put down 20% of the home’s purchase price before approving a loan. But nowadays, many mortgage options allow for smaller down payments, some as low as three percent. So, if you haven’t saved much cash, don’t despair. You may still be able to buy the home of your dreams.
Myth #02: Mortgage Interest Rates are Set on Stone
Mortgage interest rates can fluctuate daily, sometimes even hourly. So if you see a rate you like, don’t wait too long to lock it in. The same goes for refinancing. If you’re thinking about refinancing your home, paying attention to interest rates is key. But don’t get too caught up in the day-to-day fluctuations. A small change in rate won’t make that much of a difference in your monthly payment.
Myth #03: You Need Perfect Credit to Qualify for a Mortgage
If you have good credit, you’re in a great position to qualify for a mortgage. But if your credit isn’t perfect, that doesn’t mean you can’t still buy a home. There are plenty of programs out there for people with less-than-perfect credit. You may just have to pay a higher interest rate or make a larger down payment.
Myth #04: If You’re Self-Employed, You Can’t Get a Mortgage
This one isn’t true, either. While securing a mortgage as a self-employed person is much more complex, it’s not entirely impossible. Most mortgage brokers or lenders only accept people with a 9-5 job with at least three months’ worth of payslips. Anything less than that is mostly treated as a complex case and eventually rejected.
Be that as it may, plenty of mortgage programs are still available for self-employed borrowers. Like with a bad credit score, the key here is finding lenders and brokers who accept self-employed candidates and maintaining a strong income history to support your application.
Additionally, you’ll need to prove your income through tax returns and financial statements. This is where most self-employed people have trouble because they don’t have the necessary documentation to show a steady income.
If you’re in this situation, it’s best to seek out the help of a professional accountant who can help get your finances in order and give you the best chance of getting approved for a mortgage.
Myth #05: A Pre-Approval Means the Money is Coming
Many people think that a pre-approval letter guarantees they’ll get the money for their mortgage, but that’s not always the case. A pre-approval is simply a letter from the lender saying you’re eligible for a loan up to a certain amount.
It’s important to remember that pre-approval is not a commitment from the lender to give you the money. If anything, plenty of financial paperwork must be resolved afterward, including going into more detail to verify your sources of income, employment letters, and debt obligations. You’ll, therefore, need to wait for the final decision even after you’ve received a pre-approval letter.
Myth #06: A Lower Interest Rate Translates to a Cheaper Mortgage
The interest rate is the portion of your monthly mortgage payment that goes towards the actual loan instead of paying down the principal or escrow payments.
A lower interest rate will save you money over the lifetime of your loan, but it doesn’t necessarily mean you’ll have a cheaper mortgage. That’s because lenders offset low rates by charging higher fees or increasing your borrowing costs in other ways.
Myth #07: You Shouldn’t Change Jobs If You’re In the Process of Getting a Mortgage
The process of getting a mortgage can be long, so it’s not uncommon for people to change jobs during that time. If you do switch jobs, it’s essential to notify your lender right away. They’ll likely ask for a letter of explanation and may need updated employment verification.
As long as you’re honest and upfront with your lender, changing jobs shouldn’t impact your ability to get a mortgage.
Myth #08: The Best Mortgage is a 30-Year Fixed Rate Mortgage
While a 30-year fixed rate mortgage is the most common type, it’s not always the best option. If you plan on staying in your home for a shorter period, you may be better off with a different type of mortgage.
For example, if you think you’ll sell your home in five years or less, you may want to consider an adjustable-rate mortgage. These have lower interest rates for a set period, usually five years. After that, the interest rate adjusts annually based on current market conditions.
An adjustable-rate mortgage could save you money if you’re sure you’ll sell your home before adjusting the interest rate. If you want to change your mortgage payments be sure to look carefully into the cost of remortgaging.
Myth #09: You Can Only Secure a Mortgage from Your Current Bank
This is not true! You can shop for a mortgage from different lenders, including banks, credit unions, and online lenders. While your bank might offer preferential deals and rates to existing customers, you’re not compelled to take a mortgage from them.
You may find that you can get a better interest rate or terms from another lender. Comparing rates and terms is always best before deciding on a mortgage.
Myth #010: You Need to Find a House First, then Find the Mortgage Later
While it’s true that you need to find a property before you can get pre-approved for a mortgage, it’s not advisable to start your home search without knowing how much house you can afford.
Getting pre-approval will give you an idea of the price range you should be looking in and help prevent you from falling in love with a property you can’t afford.
There you have it – the top ten mortgage myths debunked! Now that you know the truth, you can confidently move forward with your home-buying process. If you’re ready to get started on finding the perfect mortgage for your needs, contact a local lender today.