Common Mortgage Misconceptions

5 Common Misconceptions About Mortgages

Buying a home is an exciting time. But with that excitement also comes many questions - interest rates, pre-approvals, down payments - there are a lot of things you need to know. We’re here to make sure you avoid common pitfalls to make the best decision when it comes to financing your home purchase.

1. YOU NEED A 20% DOWN PAYMENT TO GET A MORTGAGE

One of the most prevalent misconceptions about obtaining a mortgage is the idea that you need a down payment equivalent to 20% of the purchase price of the home. While there are advantages to putting 20% down - for instance, you can avoid paying private mortgage insurance (PMI for short) - in today’s market there are numerous loan programs that enable you to put as little as 3% down. VA, FHA and conventional loans all have programs with low down payment options.

2. YOU SHOULD BUY A HOME FOR THE MAXIMUM YOU ARE QUALIFIED FOR

Just because you get a pre-approval from a lender for a $350,000 home does not necessarily mean you should purchase a $350,000 home. Lenders use your debt-to-income ratio (DTI) to calculate your maximum purchasing power. Typically, your DTI can not exceed 36%. Even though on paper it seems like you can afford a certain payment, it doesn’t necessarily mean you can. A number of expenses may not be included in your DTI ratio such as entertainment, dining-out, child expenses. These additional expenses can often make the maximum qualified amount unmanageable.

3. YOU NEED A 640 CREDIT SCORE TO QUALIFY FOR A HOME LOAN

While some conventional loan programs require a 620-640 credit score to qualify, there are many government backed programs that allow for lower scores when qualifying for a loan. In fact, FHA programs can allow for home buyers with credit scores in the 580 range to still qualify for a home loan.

4. TOO MANY MORTGAGE REQUESTS WILL DAMAGE YOUR CREDIT

FICO, the company that computes the credit scores mortgage lenders use, allows for consumers to ‘rate shop’. A consumer can have multiple credit inquires from mortgage lenders within a 30 day period in order to shop for the best rate and it will only count as 1 hard inquiry. Shop around for the best rates!

5. SAVE MONEY BY NOT USING A REAL ESTATE AGENT

It is true that Realtors can make up to a 3% commission when representing buyers on a home purchase. However, that 3% fee is paid by the seller not the buyer. The agreement of sale and other purchase contracts are long and quite difficult for the average consumer to comprehend. There are many contingencies that you need to have an in-depth knowledge of in order to protect your financial interests. The reality is that to not have a Realtor represent you is recipe for added stress, wasted time and, most importantly, wasted money.