Five Major Mortgage Myths
Does the thought of buying a home and going through the mortgage process give you a sinking feeling in your gut? Don’t fret, the good news is that the mortgage process is not quite as scary as you might think. While everyone has heard the horror stories, Mortgage Brokers like Range Lending work to help you prevent those from happening, as much as is humanly possible!
There are five major mortgage myths that can give you the wrong impression about the mortgage process. After you cover these five myths, you will likely feel a little bit better about buying a new home than you did before.
Here are five major mortgage myths that can put you on the wrong track if you believe them.
1.You must put 20% down to purchase a home.
20% down is a lot of money for many people in what will likely be the single largest purchase they will ever make. It is also ultimately the ideal to put down when it comes to purchasing a home. However, just because it’s the preferred option does not mean that is the only option, by any means. FHA, USDA Rural Housing, and VA loans offer options with zero or as little as 3.5% down. While each of these options has some special requirements, depending upon the program, they offer alternatives to the massive 20% down that some potential buyers feel stuck saving. Private Mortgage Insurance (PMI) may be required in these instances, but it’s a relatively small price to pay. PMI is added to your monthly mortgage payment, and looks much better than the 20% down payment that would otherwise be required.
2.Renting is cheaper than buying a home.
This seems like a no-brainer, but if you can afford to rent a home or apartment, you can likely afford to purchase a home. All of that money that you are now spending on rent can be rededicated to paying yourself through homeownership. Instead of paying a landlord, you are now paying yourself as you gain equity in your house. You even have the chance of earning a real return on your investment if your house appreciates in value over time. With prices rising through the years, a fixed-rate mortgage is a way to ensure that your payment stays level over a fixed term. Rent prices have the potential to rise each time the rental contract renews, but a fixed-rate mortgage locks you into a rate that will not change unless you refinance or move into a new house with a new mortgage.
3.The lowest interest rate is always the best option.
The interest rate on your mortgage is obviously a very important number, but you ignore other numbers like the closing costs at your own peril. Looking at the APR, or annual percentage rate, will give you a more accurate view of the cost of your mortgage. This number is the total cost of borrowing money expressed in terms of a rate. This includes all lender fees, finance charges and all other closing costs. While the interest rate can be an indicator, the fees can add up to actually result in a higher APR than a comparable loan with a slightly higher interest rate.
4. Your credit needs to be excellent to be approved for a mortgage.
If you have less than stellar credit, you can still qualify for a mortgage. In fact, your credit score does not have to be perfect to find a mortgage in your budget. Credit blemishes on your credit history can be a problem, but most mistakes won’t prevent you from finding a lender who will work with you. The good news for those with imperfect credit is that there are many mortgage programs that work with borrowers that have low credit scores. You don’t need an 800+ score to score that perfect house.
5. You cannot afford to purchase a home.
As discussed in the second item, if you can afford to rent, then you likely can afford to purchase a home. To find out just how much mortgage that you can afford, you will need to talk to a qualified Mortgage Broker like the ones at Range Lending. Each situation is unique, and by providing some information about your credit, debts, and assets, you can learn how much house you can afford.
The key to the mortgage process is information. It is easy to feel overwhelmed or intimidated about such a large expense and the subsequent work it takes to make it happen, but the reality is that the process is not so scary and quite predictable. Experienced Mortgage Brokers like those at Range Lending work to help educate you in the mortgage process. It’s their job to answer questions and guide you through the process. Get started today with a mortgage application or contact us to ask a question about the process.