Many mortgage myths are floating around, partly because mortgages can be complex and confusing. As with every complex topic, mortgage myths can result in borrowers having flawed or incomplete information. These myths harm current and potential borrowers, giving false expectations and establishing a false sense of security.
Here are the myths 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.
Mortgage Myth 1: Everyone Can Qualify for a Mortgage with a Low Interest Rate
Mortgage interest rates dropping to historic lows is excellent news for borrowers. However, some borrowers do not qualify for the lowest available rates for various 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 and the type of mortgage loan.
To get the lowest possible interest rate, borrowers should review their credit reports and address any problems. It may also help 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 most significant value. Look for the mortgage types that provide the best interest rate and security of the kind of home you wish to purchase.
Related: 3 Tips for Improving Your Credit Report
Mortgage Myth 2: It’s Easy to Get a Mortgage Today
Although interest rates are at historic lows, mortgages are not easy today. Real estate markets are experiencing high 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 likely to default.
Furthermore, lower mortgage rates often result in more people applying for a mortgage to buy a home or refinance. The abundance of applications can stress lenders, slowing the issuance of home loans for various reasons.
Related: Basics of Getting a Mortgage
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 spending the refinancing cost.
Borrowers may benefit from refinancing if they can significantly reduce their mortgage rate by at least .75% and remove mortgage insurance from the loan. Plus, they often need to remain in the home for five more years for refinancing to be beneficial.
Before deciding to refinance, work with your mortgage broker to calculate the total savings from refinancing your home mortgage.
Related: When is a Good Time to Refinance?
Mortgage 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 searching 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 the seller rejected simply because 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.
Related: Should I Get a Mortgage Pre-Approval Before Working with a Real Estate Agent?
Mortgage 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 typical arrangement for repayment is tacking 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 a slight increase in monthly payments until the amount is paid off.
Mortgage Myth 6: A 20% Down Payment is Necessary
Many people, especially first-time homebuyers, believe you cannot buy a home if you do not have at least 20% down. That is not true.
If qualified, you can take out a conventional loan and pay down as little as 3%. Some government-backed loans, such as a VA loan, have a 0% down payment requirement.
However, it is important to note that if you do not pay at least 20% down, you will be required to pay private mortgage insurance. PMI is a premium you will pay monthly to your mortgage lender to mitigate the risk your lender takes by accepting less than a 20% down payment.
Mortgage Myth #7: A 30-Year Fixed Mortgage is the Best Mortgage Option
While a 30-year mortgage with a fixed rate is popular among homebuyers, several other options exist.
Lowering the number of years on your mortgage term can result in paying less interest and owning your home quicker.
A 15-year mortgage term comes with a higher monthly payment, but the overall cost of the loan will be lower over the life of the loan. 15-year mortgages typically have lower interest rates, allow borrowers to build equity in the home quicker, and allow borrowers to pay off the mortgage in half the time of a 30-year mortgage.
Related: 15-, 20-, and 30-year Fixed-Rate Mortgages
Conclusion
Mortgage decisions are among the most significant financial choices many of us will make in our lifetimes. Therefore, making informed decisions based on facts rather than fiction is imperative. As you embark on your path to homeownership, remember the truths we’ve uncovered here. With accurate information, you can confidently navigate the mortgage landscape, secure favorable terms, and turn your homeownership dreams into a reality.
Marimark Mortgage
Marimark Mortgage is based in Tampa, Florida, and proudly serves homebuyers and homeowners in all of 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.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.
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