10 Minutes Read
Apr 20, 2024
When it comes to mortgages and the home buying process, there are numerous myths and misconceptions that can leave homebuyers feeling confused and misinformed. In this blog post, we'll separate fact from fiction by debunking some of the most common mortgage myths.
Myth #1: You Need a 20% Down Payment
Many people believe that a 20% down payment is required to buy a home, but this is not always the case. There are various loan programs available, such as FHA loans, that allow for much lower down payments, sometimes as low as 3.5%. While a larger down payment can help you avoid private mortgage insurance (PMI), it's not a requirement for all borrowers.
Myth #2: You Need Perfect Credit to Get Approved
While a good credit score is certainly advantageous, it's not necessary to have a perfect credit score to qualify for a mortgage. Lenders consider a variety of factors, including your income, employment history, and overall financial situation. Even with a less-than-perfect credit score, there may be loan programs available to you.
Myth #3: Pre-qualification and Pre-approval Are the Same Thing
Pre-qualification and pre-approval are often used interchangeably, but they are quite different. Pre-qualification is a quick, informal process that provides a rough estimate of how much you may be able to borrow. Pre-approval, on the other hand, involves a more thorough evaluation of your financial documents and results in a formal approval from the lender.
Myth #4: Adjustable-Rate Mortgages (ARMs) Are Always Riskier
ARMs can be a viable option for homebuyers who plan to stay in their home for a shorter period or who expect their income to increase over time. While ARMs can be riskier if interest rates rise, they can also provide lower initial interest rates compared to fixed-rate mortgages.
Myth #5: You Can't Get a Mortgage with Student Loan Debt
Having student loan debt does not automatically disqualify you from getting a mortgage. Lenders will consider your overall debt-to-income ratio and your ability to make consistent payments. As long as your debt levels are manageable, you may still qualify for a mortgage, even with student loans.
Myth #6: You Should Always Go with the Lowest Interest Rate
While a low interest rate is certainly desirable, it's not the only factor to consider when choosing a mortgage. You should also evaluate the fees, closing costs, and overall terms of the loan to ensure you're getting the best deal.
Myth #7: Shopping Around for Rates Is a Waste of Time
On the contrary, shopping around for mortgage rates can save you thousands of dollars over the life of your loan. Different lenders may offer varying rates and terms, so it's essential to compare options and find the best fit for your financial situation.
Myth #8: You Can't Get a Mortgage with a Job Change
While job stability is important, a recent job change or career transition doesn't necessarily disqualify you from getting a mortgage. Lenders will evaluate your overall employment history, income, and ability to make consistent payments.
Myth #9: You Can't Get a Mortgage After Bankruptcy
While a bankruptcy can certainly impact your credit score and ability to qualify for a mortgage, it's not an automatic disqualification. Depending on the type of bankruptcy and how much time has passed, you may still be able to secure a mortgage, especially if you've worked to rebuild your credit.
Myth #10: You Need to Be a First-Time Homebuyer to Access Special Programs
Many homebuyer assistance programs and special loan options are available not only to first-time homebuyers but also to repeat buyers, low-to-moderate-income individuals, and those purchasing homes in designated areas.
