Common mortgage myths can negatively affect the home buying process if not understood and dealt with. Let’s demystify the home loan process by debunking five common home buyer misconceptions.
Obtaining a mortgage can be one of the most complicated parts of buying a home. You need to have an understanding of the timeline, know the details of the different types of loans, and have your paperwork in place. In addition, it’s important to be aware of the common mortgage myths that can affect the home buying process.
Debunking 5 Common Mortgage Myths for Home Buyers
A pre-qualification is the same as a pre-approval
Many people believe that getting pre-qualified and getting pre-approved are the same thing. That is incorrect. The most significant difference between the two is the information that’s required. For a pre-qualification, the lender will need income information, employment, and debts which the lender determines the borrower’s likelihood they can get a mortgage. This information is typically not verified until the borrow applies. For a pre-approval, the lender will verify the borrower’s credit, employment, income, and other financial information. It’s critical that you go through both a pre-qualification and pre-approval to get the most accurate information about the mortgage you can obtain.
A 20% down payment is required to get a mortgage
While there are mortgage products that reward borrowers who put 20% or more toward a down payment, it’s not necessary to obtain a mortgage. An FHA loan allows borrowers to put as little as 3.5% down for their home purchase. It’s recommended that borrowers talk with their lenders about what the pros and cons are for each loan type for them, as less money down often means a higher monthly payment and the existence of mortgage insurance.
Perfect credit is needed to get a mortgage
An 800-credit score is not required to get a mortgage. While the higher the score, the more a borrower gets rewarded, an extremely high credit score is not a necessity for a home loan. FHA loans allow as low as a 580-credit score to qualify for a home loan. Again, it’s good to talk with your mortgage lender about the best plan since a lower credit score often means a higher interest rate.
FHA loans are for borrowers with no money
This type of home loan is most popular among first time home buyers. Like anything in life, there are pros and cons of FHA mortgages. FHA loans are definitely a great option for borrowers who don’t have significant money saved for a down payment, and borrowers with a lower credit score, but that doesn’t mean that only borrowers that fit that criteria sign up for FHA home loans. The FHA loans interest rates are often the lowest available for borrowers, which is a reason why borrowers with great credit and money available may take advantage of an FHA loan.
If a borrower is denied once, they’ll never be able to get a mortgage again
Many people think that if a borrower gets denied for a mortgage once, they’ll never be able to get a mortgage again. This is one of the most common myths that drives potential borrowers away from working toward a mortgage in the future. If you’ve been turned down when applying for a mortgage, don’t worry you can still qualify in the future. Your lender will help advise you on the proper steps to take to get a mortgage. These steps may include paying off debts, paying bills on time, and improving credit scores through a credit repair program. This myth could be the most detrimental if you consistently believe you aren’t able to qualify if you’ve been rejected before.
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