Many mortgage myths are floating around, partly because mortgages can be complex and confusing. There are many different types of mortgages available to different borrowers around the U.S., depending on the individual borrower and the specifics of the home.
As with every complex topic, mortgage myths can result in borrowers having bad or incomplete information. These myths are harmful to both current and potential borrowers, giving false expectations and establishing a false sense of security.
Realtor.com debunked five of the most prevalent and harmful mortgage myths. Here are the myths they debunked, and the eye-opening truth related to each myth, reflecting the need for each borrowed to work with a highly qualified and reputable mortgage broker.
Myth 1: Everyone Can Qualify for a Mortgage with a Low Interest Rate
Mortgage interest rates dropping to historic lows is great news for borrowers. However, some borrowers do not qualify for the lowest available rates for a variety of reasons.
The lowest mortgage rates are reserved for mortgage candidates who meet or exceed the standards set by lenders. These standards may include a high credit score, outstanding credit history, and a sizeable down payment. The type of home and its location also impact the interest rate, as well as the type of mortgage loan.
To get the lowest possible interest rate, borrowers should start by reviewing their credit report and addressing any problems. It may also be helpful to pay off smaller loans, while saving for a down payment and closing costs.
Borrowers may also want to explore different types of mortgages to identify those that offer the greatest value. Look for the mortgage types that offer the best interest rate and the most security for the type of home you wish to purchase.
Myth 2: It’s Easy to Get a Mortgage Today
Although interest rates are at historic lows, mortgages are not easier to get today. Real estate markets are experiencing a high level of turbulence and many people are either unemployed or furloughed for an extended period.
Interest rates tend to fall when the economy is facing trouble. Under these conditions, lenders often enact stricter lending standards to avoid lending to borrowers who are likely to default on the loan.
Furthermore, lower mortgage rates often result in more people applying for a mortgage to buy a home or refinance. The abundance of applications can put stress on lenders resulting in them slowing the issuance of home loans for various reasons.
Related: Basics of Getting a Mortgage
Myth 3: Everyone can Benefit from Refinancing a Mortgage
Refinancing a mortgage does not make sense for everyone. Refinancing only makes sense if the homeowner can refinance and lower the overall amount they pay for the home, after paying the cost of refinancing.
Borrowers may benefit from refinancing if they can significantly reduce their mortgage rate by at least .75% and/or remove mortgage insurance from the loan. Plus, they often need to remain in the home 5 more years for refinancing to be beneficial.
Before deciding to refinance, work with your mortgage broker to calculate the total savings that could result from refinancing your home mortgage.
Related: When is a Good Time to Refinance?
Myth 4: Once You’ve Found a Home, You can Apply for a Mortgage
Buyers should begin the mortgage process and become pre-approved for a home loan before starting to search for a home.
Besides, sellers and real estate agents often choose not to work with homebuyers who are not pre-approved, because they don’t want to waste time. Without a pre-approval letter from a lender, a homebuyer could make an offer on a home that is rejected by the seller simply based on the fact that the buyer is not approved for a mortgage.
Furthermore, mortgage lenders have strict lending standards. Just because a homebuyer has a contract on a home and believes he is qualified, there is no guarantee a lender will give him a mortgage loan.
Myth 5: Mortgage Forbearance Means You Are Not Required to Pay it Back
Mortgage forbearance is not mortgage forgiveness. Forbearance is a temporary period of relief where the borrower is not required to make regular mortgage payments.
Missed payments during mortgage forbearance must be repaid. The specific terms of repayment are specified by the lender or loan servicer.
A common arrangement for repayment is to tack the missed payments onto the back of the loan, extending the loan term by the number of missed payments. Other mortgage servicers may require a lump sum payment or slight increase in monthly payments until the amount is paid off.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.