For most people, buying a home without getting a mortgage isn’t a possibility. However, the prospect of trying to obtain a mortgage fills many would-be homebuyers with more than a little angst. The problem is that there are many myths about what it takes to get a mortgage. Because of these misconceptions, it’s difficult for many homebuyers to figure out what they need to do to get a mortgage. The article that follows talks about five of the most common misconceptions about getting a mortgage. Knowing what they are can help you make a better decision about your mortgage come sale time.
1. Pre-Qualifying for a Loan Means You’ll Get It
According to the Better Money Habits website, many people believe that if you qualify for a loan, you’re going to get it. However, it doesn’t mean that at all. Instead, it shows you how much you could qualify to borrow, based upon factors, like your debt-to-income ratio. Typically, the pre-qualification process is just the first step among many in the mortgage process.
2. You Have to Make a Large Down Payment
Most people don’t have an extra $20K or $30K just lying around. However, that’s the typical amount that many homebuyers would have to put down if they were to offer up a 20% down payment. However, according to Smart Asset, you don’t necessarily have to have a lot of money up front.
If you qualify for a loan backed by the FHA, you may only need to put down as little as 3.5%. For a house with an asking price of $150,000, that can mean the difference between putting $30,000 down and putting just over $5,000 down. In this case, it’s best to work with your lender and your real estate agent to explore the down payment that will be right for you.
3. The Best Credit Score Will Be Used
If you and your spouse or significant other are getting a mortgage together, it’s best not to assume that the mortgage company will go with the highest credit score, according to Zillow. Instead of choosing the highest score from the three credit institutions, lenders will choose the one that is in the middle. Some factors can change this, however. For example, if one of you has a high credit score and also earns a high income, then the lender may be more inclined to go with the high credit score. In this case, there is the income to back up the score, making it a safer bet to go with the higher score.
4. If You Can Pay 30%, You’re Safe
CNN Money reminds borrowers to not get hung up on a number that’s tossed around a lot in mortgage circles. That number is 30%. Specifically, both buyers and renters believe that if their mortgage or rent is 30% of their income, they’re home free. However, that isn’t necessarily the case.
The 30% doesn’t actually represent your rent or mortgage alone. Instead, that number also includes mortgage or renter’s insurance, property taxes, and other related costs. If you’re trying to figure out your budget for your mortgage, make it less than 30% to be on the safe side.
5. A Low Down Payment Won’t Affect my Mortgage Amount
Earlier, this article discussed how a person can get into a house, without paying a 20% down payment. That is true. However, typically, if you don’t have the 20% to put down, you do have to get some sort of private mortgage insurance to cover the shortfall. This amount is usually only about 1% of the total mortgage cost, and it’s tacked onto your monthly mortgage payment. This means you’ll pay a bit more each month because you’re paying the insurance costs associated with your mortgage.
In light of this, you may want to do some serious thinking about putting down 20% versus your other options. You may still conclude that it’s worth it to buy your home now, even if you can’t put the 20% down. This is especially true if it’s a buyer’s market. However, if it makes more sense financially to continue renting for a while, it’s also okay to go that route.
Buying a home can be confusing for many home buyers, especially first-time home buyers. It doesn’t help that there are many misconceptions about getting a mortgage that tend to scare off even the most qualified buyers. If you fall into this camp, it’s best to educate yourself about what it means to get a mortgage. Doing this will help you make a clearer decision about your mortgage based on facts, not misconceptions. When looking at getting a mortgage your best option is to give us a call at Saint Charles Mortgage. We have a great track record with our customers and always look forward to working with you. Call Today To Get Your Mortgage Process started when looking at a mortgage in Texas.