Purchasing a home can be a scary and overwhelming process, especially your first home. Without home buying experience, it is difficult to separate fact from fiction. Here are 5 Mortgage Myths and Misconceptions that we want to clarify for you:
1. Myth: You must put 20% down
Many lenders will tell you that it is generally smart to pay as much as you comfortably can up front. However, these days, borrowers are able to put less than 20% down on a mortgage down payment.
Talk to your mortgage lender and find out if you are eligible for special programs offered to first-time buyers or veterans. These programs may reduce or even eliminate your down payment, such as Federal Housing Administration (FHA) loans that allow a 3.5% minimum down payment or Department of Veterans Affairs (VA) loans where qualified borrowers can put zero down.
With that said, the more money you put down the less your monthly payment and interest will be. It is also important to note that for conventional financing, if you do not make at least a 20% down payment when you buy your home, you will likely need to pay private mortgage insurance (PMI). Make sure you know how much this cost will be and factor that into your monthly home payment budget.
2. Myth: You need perfect credit to buy a home
Although buyers with poor credit may face an uphill climb, even with a less-than-perfect credit score, you may qualify for a mortgage if the lender is satisfied with your overall financial situation. You will need to provide documentation and information, including your debt-to-income ratio (DTI) and other figures. You may be able to avoid higher rates if you work on your credit score before you start shopping for a home.
3. Myth: If you owe a lot of student loan debt, there is no way you can get a mortgage
Don’t assume that having a high amount of student loan debt automatically disqualifies you from getting a mortgage. The key factor is not necessarily the size of your loan obligation, but the amount of your total monthly debt payments compared to your monthly income. This is called your debt-to-income ratio.
4. Myth: It is harder to financially plan to buy a home, when you are in the middle of financially preparing for a wedding
Although weddings can be expensive, according to TheKnot, the average wedding has 138 guests who typically give a gift valued at $100 each. That’s $13,800 in spatulas, baking pans and other things that you might not necessarily use (or want). If every guest contributed to a down payment fund instead, you may have enough saved for a down payment.
5. Myth: 30-year mortgages are the best option
Traditionally, 30-year mortgages typically offer the lowest monthly payments, but they’re not necessarily best for everyone. If you can afford the higher payments associated with a 15-year mortgage, you will end up saving a lot in interest over the life of the loan. You can also consider an adjustable rate mortgage, which has an interest rate that periodically changes. When the rates change, generally, your monthly payment will increase if rates go up and decrease if rates fall.
Source: Bank Of America