Pardon the play on words but there really is a lot of myth-information out there about home mortgages. Purchasing your home is one of the largest and most expensive investments you will ever make. Let’s separate fact and fiction when it comes to obtaining financing–aka a mortgage-for the home of your dreams.
14 modern mortgage myths
Myth #1: Pre-qualified means the same thing as pre-approved
Fact: While the phrases sound similar, they are different. A pre-qualification is an estimate of how much money you may be approved to borrow for a home loan; you do not have to provide financial proof of income and debt. Pre-approval means you’ve supplied financial information such as credit, employment, and income, and the lender has verified this information and given you a letter stating your approved loan amount. A pre-qualification helps provide a basic idea of what you may be able to afford and qualified to borrow as you begin searching for your dream home.
CIS’s pre-qualification process helps you understand how much you may be qualified to borrow for the home of your dreams.
Myth #2: Getting pre-approved guarantees you will get a home loan
Fact: There are lots of reasons why mortgages can be denied even after someone has been approved for a mortgage. Changing jobs, adding additional debt, and not having enough money to cover the costs of getting the mortgage are some of the most common. If you are pre-approved for a home loan and are thinking about making a financial change, first check with your mortgage professional to be sure your decision doesn’t sabotage the pre-approval.
Once you are pre-approved for a mortgage, always consult with your mortgage professional before making any financial changes.
Myth #3: If you are denied a mortgage once, you will never be able to get a mortgage
Fact: If you get turned town for a mortgage, don’t panic. Paying off debts, paying bills on time, and improving credit scores can help you move from “no” to “yes” the next time you apply.
If at first you don’t succeed, pay off debts, pay bills on time, improve your credit score, and try, try again!
Myth #4: In order to qualify for a mortgage, you need to put at least 20 percent down
Fact: Many first-time homebuyers erroneously believe they have to have 20 percent of the home’s purchase price saved. While a down payment of 20 percent or more can help lower your monthly payment, it’s not a requirement. Ask your CIS Home Loan representative about low down payment options and which one might be right for you.
You do not have to cough up a 20 percent down payment in order to be approved for a home mortgage loan.
Myth #5: You need an excellent credit score to get a mortgage
Fact: According to ValuePenguin, the average FICO score in America is 695. For a conventional home loan that’s backed by Fannie Mae or Freddie Mac, the minimum score required is 620. The lowest credit score to buy a house with an FHA loan is 580. If you have a lower credit score and need help, contact a CIS Home Loan representative to discuss ways you can improve your credit score.
Perfect credit is not needed to get a mortgage and low credit scores can be improved.
Myth #6: FHA home loans are for borrowers with no money and poor credit
Fact: Popular among first-time home buyers, an FHA home loan is insured by the Federal Housing Administration. FHA loans are a great option for borrowers who don’t have a significant down payment and lower credit, but other borrowers may want to take advantage of an FHA loan because the interest rate is often the lowest available. Talk to a CIS Home Loan representative about the pros and cons of an FHA loan to determine if this option is best for you.
FHA loans offer lower interest rates and small down payments for all home buyers.
Myth #7: Only income determines how much you can borrow
Fact: While how much income a potential borrower makes is important, other factors such as student loan debt, credit scores, and down payment percentage can impact how much a home buyer can borrow. Talk to a CIS Home Loan representative about your unique financial situation to come up with a realistic amount before you start shopping for a home.
In addition to income, other factors such as student loan debt, credit scores, and down payment influence how much you can borrow for a home.
Myth #8: Mortgage rates are the same no matter where you go
Fact: It’s important to shop around because all mortgage rates are NOT the same. Closing costs and other fees can vary from one mortgage lender to another. And a lower rate can make a big difference on your monthly payment. Contact a CIS Home Loan representative to discuss our latest mortgage rates.
All mortgage rates are not created equal. A lower mortgage rate = a lower monthly payment.
Myth #9: It’s always best to get a 30-year mortgage
Fact: While the monthly payment will be higher on a shorter-term mortgage—such as 15 years—the total amount of interest paid is significantly lower. In addition, equity grows faster with a shorter-term mortgage. While 30-year mortgages are great for borrowers who haven’t saved a lot of money for a down payment or don’t have a lot of reserve money available, it’s not always best for everyone. Talk to your CIS Home Loan representative today to see which option is best for you.
If you can afford to do so, there are financial benefits to taking out a shorter-term mortgage.
Myth #10: It’s cheaper to rent a home vs owning a home
Fact: At face value, buying a home for $180,000 can seem daunting. And while it’s true that a monthly rent payment can be less than a monthly mortgage payment, it’s also important to remember these key points:
- Owning a home builds equity; you have something to show for your payments. Renting is like watching water run through a sieve.
- Rent payments can increase each year; mortgages can have fixed payments
- Owning a home can include tax benefits
While seemingly cheaper in the beginning, renting can be costlier in the long run.
Myth #11: Principal and interest are all that matter
Fact: Believing that only your borrowing amount and interest rate determine your monthly mortgage-related payments can get you into trouble. Things like property taxes and homeowner’s insurance can add several hundred dollars to your overall monthly expenditure for a home. A CIS Home Loan representative can help you identify and calculate these sometimes forgotten-about expenses so you’re not caught short each month.
Be sure to factor in all expenses when buying a home.
Myth #12: Paying off a mortgage as quick as possible is always best
Fact: No one enjoys being in debt. And while a mortgage is one of top debts someone can have, there are times when paying off another debt first might be the smarter option. One example is paying off a loan with the highest interest rate. If you have a personal loan at a 10 percent interest rate and a mortgage loan at a 3.5 percent rate, it makes more sense to pay off the personal loan first.
Paying off loans with higher interest rates first can be a better financial strategy than paying off a mortgage at a lower interest rate.
Myth #13: Bankruptcy, judgements, or collections prevent you from getting a mortgage
Fact: It is true that a minimum number of years have to pass before you can secure a mortgage after declaring a Chapter 7 or 11 bankruptcy. But if you have a bankruptcy or judgment, talk with a CIS Home Loan representative about the steps you may be able to take to secure future financing.
There are steps you may be able to take to secure future financing after going through bankruptcy, judgements, or collections.
Myth #14: The mortgage process is difficult and stressful
Fact: The mortgage process is as easy or as difficult as the lender you select. The CIS mortgage team prides itself on making the mortgage process simple as possible for each borrower. We will walk you through each step, making sure we answer and address all of your unique mortgage-related questions and issues. Let’s get the conversation started today! Contact us.
Ready to make the step toward home ownership? CIS Home Loans, a full-service mortgage bank, has served homeowners since 1991. The personal relationships we form during the loan process are as important as the loan itself. It’s why Character, Integrity, and Service make up CIS Home Loans’ name. For more information, click here. You can also follow us on Facebook , get pre-qualified, or apply for a loan today.