Mortgage Myths and Misinformation Debunked
It is always surprising to sit down with clients who are approaching home buying for the first time (or sometimes even a move-up buyer) to find them harboring old truths, myths, and misconceptions about how to finance a real estate purchase. Dispelling these is our first step in creating an educated, well-prepared borrower.
Here are the top mortgage myths, misinformation, and half-truths we often encounter:
-“You need a 20% down payment.” This myth just refuses to die. Years ago, this may have been true, but certainly not today. There are government-backed loans that allow for as little as 0% down. The average first-time buyer only puts about 6-7% down these days.
-“You need to find a home before you apply for a mortgage.” In fact, the opposite is the better strategy, if you wish to successfully compete in a tight market. Let's get you preapproved first, with the property TBD, and you’ll know just how much home you can buy before you start shopping. A solid preapproval tells the seller that you can close the deal!
-“Having to pay Private Mortgage Insurance (PMI) is bad.” Oddly, PMI is viewed by some as a “penalty” for not putting 20% down, and may be why the “you need 20%” myth persists! In truth, PMI enables buyers – especially first timers -- to get into the real estate market with less money down. History shows that even with PMI, getting in sooner usually beats staying out and watching prices soar from the sidelines as you try to save up for an ever-more-expensive home.
-“You need perfect credit.” Excellent credit does tend to win you a lower interest rate, but sterling credit is not mandatory. We often lend to borrowers with less-than-perfect credit.
-“You can't get a mortgage if you have student loan debt.” Myth. Lenders consider your student loan debt as a part of all your current debt obligations when determining your debt-to-income ratio, and there may even be options to restructure some or all of that debt.
-“You need to be debt-free to get a mortgage.” This is never true, and pretty darn rare. Most clients have some form of other debt (credit card, car loans, student loans). Lenders consider your overall debt-to-income ratios when assessing your ability to make payments.
-“You should plan to buy a home in the Spring, because that’s when the most homes are put up for sale.” Spring was once the peak home buying season, but less so today. There are great deals to be found year-round.
-“The best deal is always a 30-year fixed mortgage.” Take off those blinders! It’s not always the best fit, so we help you compare dozens of programs, including ARMs, many of which have lower rates and – for your situation - may be more attractive from a cost standpoint.
-“You can't get a mortgage if you're self-employed.” Not true! There are many mortgage programs for self-employed borrowers, retirees, and other non-traditional borrowers.
Bring your questions and concerns to us. We have all the facts and can tell you the truth about exploring loan options. With our help, you will avoid mortgage myths and make the best decision for your financial future. Contact us for details on how you can purchase a home.