Everybody has fallen for a prank on April Fools Day at some point in their lives. Being fooled on April Fools Day is something you can typically laugh off. However, falling for a mortgage myth is no laughing matter. If you’re on the hunt for a new home and are doing mortgage research, then the last thing you’ll want to do is fall for a potentially harmful mortgage myth. The following are some of the most common mortgage myths debunked:
• You have to make a 20 percent down payment – Making a down payment is required in order to obtain a loan, but what many people don’t realize is that the down payment doesn’t always have to be that large. A 20 percent down payment has always been standard, but it’s not required. If you have excellent credit, then you could be required to pay as little as three percent of the home’s cost upfront, while those with below-average credit can pay as little as 3.5 percent through an FHA mortgage loan. Just keep in mind that the smaller your down payment is, the higher your monthly payments and interest rate are likely to be.
• Your student loan debt may prevent loan qualification – Student loan debt is a massive issue for the Millennial generation. A large number of younger adults are struggling with their student loans. In fact, it’s estimated that around 25 percent of Millennials have put off buying a home because of their student loan debt. Because of this, mortgage qualification guidelines have recently been adjusted to make it easier for those with student loans to qualify for a mortgage. This was done by pushing the debt-to-income ratio requirements from 45 percent to 50 percent. This means that the student loan debt you might be carrying is going to have less of an impact on your ability to qualify for a loan.
• You have to have excellent credit – Excellent credit helps, there’s no doubt about it. The better your credit is, the more favorable the mortgage terms are likely to be. However, the minimum credit score required to qualify is generally around 620, well below the average American credit score of 700. Additionally, there are loan programs out there, such as the FHA loan, in which scores as low as 580, and in some cases even 500, are acceptable.
• 30-year terms are the best mortgage options – At first glance, you’ll notice that 30-year mortgages require much smaller payments than those with shorter terms. However, this doesn’t make a 30-year term the best option. Because you’re taking longer to pay off the loan, you’ll be paying much more in interest, which means that this is usually the most expensive option. Additionally, if you’re only planning to live in the house for a short period, then a shorter term is likely to be a better option.
• All lenders are the same – While most borrowers realize that their mortgage terms will depend heavily on certain factors, such as their credit history and income levels, many also assume that the terms they’re offered will be the same from every lender. However, different lenders offer different terms. Some lenders may be more flexible than others, which is why it’s important to compare.
Don’t let any of these common mortgage myths fool you – they’re all myths, after all. Mortgage rates are currently at still low, making it the perfect time to buy a new home. If you’ve made the decision to begin looking for a new house, then be sure to get pre-qualified for a mortgage by contacting us at Tidewater Mortgage Services today.
