When making a decision as big as taking out a mortgage to purchase a home, you need to remember one thing…knowledge is power.
With so much misinformation out there, it’s easy to get lost when navigating an unfamiliar process such as home buying. Don’t get caught up believing every story you hear or click-baiting headline you read. When you (and the mortgage professionals behind you) have a firm grasp on whats going on in the industry, you are empowered to make the decisions you are most comfortable with and have the best possible experience. To start you off, let’s debunk the top five myths about mortgages that we always see floating around…
Down Payments
Myth:
You can’t buy a home with less than 20% down.
Fact:
Although it’s always a good idea to put down as much as you are financially comfortable with because it reduces your monthly payment, there are several loan programs with down payments under 20%. For example, there are options that give buyers the ability to put 10%, 5%, 3.5% and even 0% down. Two of the most popular low downpayment options are VA Loans backed by the Veterans Administration and FHA Loans insured by the Federal Housing Administration. Ask your mortgage loan officer about all your downpayment options and decide what you are most comfortable with.
Fixed Rate Vs. Adjustable Rate
Myth:
Fixed rate mortgages are always better than adjustable-rate mortgages.
Fact:
After the 2008 financial crisis, people became wary of anything other than a 30 year fixed rate because the market was so unstable and fixed rates never change throughout the life of the loan. However, in a nutshell, fixed-rate mortgages are really only the better option if you are planning to stay in the home long term. Adjustable rate mortgages offer the benefit of a lower rate for a certain number of years. If you know you’ll only be in a house or area for a short-time, then this will definitely save you money on your monthly payment. Our Mortgage Payment Calculators are a good way to play around with rates and what that would mean for your monthly payment – try them here.
Credit Score
Myth:
Your best credit score is used.
Fact:
Mortgage lenders actually will pull three credit scores from each of the main credit bureaus (Equifax, TransUnion, and Experian) and will use the middle of the three scores for your loan application. If there is more than one borrower on the loan, the lowest middle score between the two borrowers will be used. On very rare occasions (mostly with Jumbo loan products), lenders will make an exception and use the higher of the two middle scores if it represents the buyer with a majority of the income. As in all situations during the mortgage process, ask as many questions as you need to and inquire what the best plan of action would be if there is a credit disparity. Southern Trust Mortgage has a resident credit expert that is available to all our Loan Officers and their buyers for these types of scenarios.
Bankruptcy
Myth:
You can never buy a home after filing for bankruptcy.
Fact:
Wrong. Though it may take time to rebuild your credit and prove your ability to repay, you can absolutely still buy a home after bankruptcy or any other derogatory credit event. The main thing you have to do is wait. Waiting periods depend on both the type of credit event you’ve experienced and the loan program you are interested in. The table below is a helpful guide. Click on it to download.
Interest Rates
Myth:
The interest rate you are quoted when getting pre-approved is guaranteed.
Fact:
The only rate that is guaranteed is the rate you actually “lock in”, and unfortunately you can only lock in a rate once you’ve found a property. Rates are tied to daily trading so they can change several times within 24 hours! In most cases, rates hold steady while people shop for homes and there is little difference in what they are quoted and what they end up with, but this isn’t always the case. It’s very normal to be concerned about the volatility of the market after getting quoted, that’s why Southern Trust Mortgage loan officers keep all borrowers updated on patterns and offer advice throughout the entire home loan process.