December 5th, 2021 8:23 PM by Jackie A. Graves
We’ve all been cautioned by well-meaning friends and family. “It’s hard to qualify these days, even with a good income.” “You’ll need to put 20 percent down and have perfect credit.”
While there are plenty of mortgage misconceptions floating around these days — from how hard it may be to qualify to how much you should put down — it’s important to learn the facts and how they apply to you.
Not doing so could delay homeownership, and the benefits you would gain, by years.
What You Could Gain
If you are renting now, buying a home could be a better financial decision. Of course, that depends on several factors, such as where you live, current mortgage interest rates, and what you now pay in rent. Assuming your home appreciates in value, you’ll also gain equity. That’s money you’ll benefit from when it comes time to sell.
Aside from the financial aspect, owning a home means you can stay in one place, perhaps ensuring a short commute to work, or allowing kids to grow up in the same neighborhood and stay in the same schools.
Taking the Plunge May Be Easier Than You Think
Despite what you may have heard, getting a mortgage won’t require perfect credit or a large down payment. (However, it’s safe to say you should get your finances in order before you start house hunting or talking to lenders.)
So don’t count yourself out before learning the facts. You may qualify for one of many mortgage options, down payment assistance, or affordability programs once you know what’s fact and what’s not about the mortgage process and products. Here are a few common myths we’ve debunked to help you get started.
Myth #1: Find a home first, then worry about financing.
This is a very painful lesson for many first-time buyers who fall in love with a home only to learn they can’t qualify. That’s why it’s important to consult with a lender before you embark on your home-buying journey.
A lender will ask a few questions and check your credit to pre-approve you. This process will give you a good idea of your price range, and also of any credit hurdles you may need to overcome to secure a lower interest rate, potentially saving thousands over the life of your loan.
You can start the pre-approval process with ChangeMyRate.com online by clicking this link.
Myth #2: You’ll need perfect credit.
Few people have perfect credit — and that’s not what lenders are looking for anyway. If you have a steady income and pay your bills on time, it may be possible to qualify for a mortgage. The minimum credit score you’ll need depends on the loan type. For example, conventional loans typically require at least 620, and FHA loans allow for credit scores as low as 500 in some cases. But remember, lenders may also have different requirements based on other factors such as your down payment amount or income.
Myth #3: You’ll need to put 20% down.
This is something most first-time homebuyers hear from well-meaning parents or friends, but it’s simply not true. According the the ZIllow Group Consumer Trends Report, only one-quarter of buyers (24 percent) pay 20 percent of their home’s purchase price upfront as a down payment. Qualified borrowers can secure home financing today through many different programs with much lower down payments, such as 3% down with programs backed by Freddie Mac and Fannie Mae and 3.5% down with FHA. Some buyers can qualify for USDA and VA programs that require no down payment at all.
Myth #4: You can’t use gifts/grants for your down payment.
Many mortgages today allow the down payment to come from any source as long as those sources are documented. According to the 2017 Zillow Group Consumer Housing Trends Report, 20% of buyers used a gift or loan from family or friends.
Not only can your down payment include gifts from parents or friends, but there are also grants from non-profits or other sources out there that could help, such as company-sponsored home-buying programs. If you’d like to see what’s available, you can search for down payment assistance programs in your area at www.downpaymentresource.com.
Myth #5: It’s always best to get a 30-year fixed-rate mortgage.
Wrong again. The 30-year fixed mortgage is certainly a popular option, but there are many mortgage options out there. Something besides a 30-year fixed rate mortgage might be better for your needs, perhaps offering a short-term solution (and super low rate) if you know you’re only going to live in an area for a couple of years.
Because each situation is unique, you should talk with several lenders to determine the best loan options for you, taking into account your financial readiness, how long you plan to own the home, and other factors.
Myth #6: You must use the lender that pre-approved you.
While getting pre-approved by a lender is considered the first step towards getting your new home loan, it does not obligate you to work with that lender once you’re ready to purchase. In fact, it’s in your best interest to shop around and compare terms from several lenders. As mentioned just above, there are many types of mortgages with options that could lower your interest rate and save you tens of thousands over the life of your loan.
Ready to look into your buying options? In addition to your local bank or credit union, or lenders referred by real estate professionals or friends, ChangeMyRate.com can provide a loan estimate.
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