Top 3 Mortgage Myths
There is a lot of misinformation about mortgages floating around. When people are ready to buy a home, it’s important for them to educate themselves in order to separate fact from fiction. Here are three misconceptions that home buyers need to be aware of.
Pre-Qualification is the Same as Pre-Approval
Many home buyers mistakenly believed that pre-qualification is the same as pre-approval. To many, pre-qualification means that they have gotten a loan. That’s not the case at all. With pre-qualification, a lender calculates the loan amount a borrower can get based on the financial details that she provides. However, this is just an estimate. Pre-approval of a home loan requires verification of all the reported financial information. With pre-approval, a home buyer knows the exact amount the lender is willing to give him.
By not understanding the difference between pre-qualification and pre-approval, a potential home buyer could lose an offer on a house because the funding is not really in place. If you want to know how much of a mortgage you can get pre-qualified for, check out this mortgage calculator.
Large Down Payment Required
Most people looking for a mortgage believe they have to make a down payment of 10% to 20%, but this isn’t true. The amount of a down payment is based on many factors. For example, there are home loans for veterans that require nothing down. The FHA (Federal Housing Administration) programs make it possible to put down 3.5%.
Home buyers need to keep in mind that there are a wide range of loan programs available. Some lenders offer loans with a down payment of 5% or less, or even nothing down. By not knowing the facts, a home buyer may think he doesn’t have enough saved to even buy a home.
Adjustable Rate Mortgages are Bad
Many people think that adjustable rate mortgages are inherently bad, but this isn’t the case. Although it’s true that the interest rate will increase at some point, this can occur when the borrower’s income is higher. Also, homeowners, on average, stay in a house several years, so they might sell their home before the higher rates kick in. The main benefit of ARMs is that the interest rates are low, sometimes lower than that of fixed rates. Also, these low rates are for the short term, which can last for up to 10 years.
Home buyers need to keep an open mind when shopping for a mortgage or they might miss out on a good opportunity. A home purchase is a complicated and expensive process. There should be no confusion when buying a new home. Although myths abound, with some research, potential homeowners can find a house they love and can afford.