Obtaining a mortgage can be a perplexing procedure, mainly if it is an unfamiliar territory for you. There is a deluge of erroneous and out-of-date information available all over the internet to further complicate things. Mortgage misconceptions circulating online make it even more challenging to comprehend what it takes to be a homeowner.
Clearing the air and setting the record straight once and for all help individuals gain more confidence in going through the mortgage processes.
The “20% down payment” myth
Most people assume that if you don’t put down at least 20%, you won’t be able to purchase a house. This is not the case. The truth is, with a traditional loan, you can buy a home with as little as a 3% downpayment. There are even 0% downpayment requirements for several forms of government-supported loans.
Several down payment support programs and subsidies can help you find funds, particularly if you’re a first-time homeowner. To learn whether these programs are available in your state, you will need to talk to your lender, and they will provide you the necessary support.
The “perfect credit prerequisite” myth
It is a tremendously exciting moment to take your initial steps toward a mortgage — and gain a foot on the building ladder. However, it is also crucial for you to know specific facts before you embark on your journey as a homeowner.
While it’s true that your credit score has a significant impact on your ability to obtain a house loan, this does not imply that you must have flawless credit to purchase a property. Low-credit-score borrowers can choose from a variety of mortgage options.
If you’re purchasing your first home and have certain doubts about your score, considering an FHA loan meridian is a good option. Compared with conventional ones, these government-supported loans allow lenders to provide less stringent credit and fewer income standards.
Additionally, lenders will have to assess a borrower’s stability, including job, assets available for a downpayment, and a paycheck. A traditional mortgage requires a minimum credit score of 620, with credit scores ranging from 300 to 850. However, it is to your best advantage to attempt to establish or enhance your credit.
The “pre-qualification concurrent to pre-approval” myth
The primary distinction between pre-approval and pre-qualification is the amount of verification that your lender performs before providing you with an estimate. When you obtain a pre-qualification, your lender will take only the most basic financial data. On the other hand, most lenders depend on self-reported financial information when pre-qualifying. This implies that these creditors can only provide a ballpark figure for the amount of money you can afford to borrow in a loan.
When a lender pre-approves you for a mortgage loan, it indicates that at least some of your financial records have been validated. You still need to provide bank statements or enable your lender to check your credit record before receiving pre-approval. This significantly improves the accuracy of a pre-approval over a pre-qualification. As a general rule, you should obtain pre-approval before beginning your house search.
Pre-qualification is a significant starting step in identifying a lender with whom you want to work with. However, it carries little weight when the time to make an offer to a property comes.
Overall, you need to bear two critical points in mind. First, each lender approaches pre-approvals and pre-qualifications uniquely. You can even come across a lender who uses the words “pre-approval” and “pre-qualification” interchangeably. Second, keep in mind that closing a loan is not assured even with a pre-approval in hand. After you’ve found a property and made an offer, you need to secure your financing with an appraisal.
The “debtor student loans as a deal-breaker” myth
You must have heard that unless you aren’t entirely debt-free, you won’t be able to acquire a home loan. The majority of Americans are in some form of debt, ranging from college loans to credit card debt.
Your debt-to-income ratio is one of the first factors lenders consider when determining whether you can afford to buy a property. It indicates the percentage computation of the debt-to-debt and recurrent costs every month. Sum up your minimum recurrent payments and expenses, compute the DTI ratio, and divide them into your entire monthly family income.
It’s not all that easy to split reality from fiction, especially when some mortgage misconceptions have been around for years. Talk to professionals and research credible sources to know the truth behind a few of the misconceptions about mortgage claims that we hear most to make sure you’re dealing with the facts.