As a Folsom mortgage lender, I have heard many myths relating to mortgages that have had new home buyers feeling they wouldn’t be able to get approved for a mortgage. From needing to make a 20% down payment to believing you can’t get a mortgage loan unless you have perfect credit, we’ll go over the top misconceptions about mortgages that simply aren’t true.
Myth #1: You should shop for a home before even thinking about financing.
This is actually the worst thing that you could do. Knowing what you can reasonably afford gives you the advantage. Seeing a mortgage broker before you buy a home will give you a better idea of how much you can be approved for a mortgage. This saves a lot of time and disappointment when you start to look for a home. There’s nothing worse than putting in a bid for that “perfect” home just to find you can’t get approved for the amount you need. The best thing you can do is get a pre-
approval.
Myth #2: You have to have perfect credit to buy a home.
There are very few people who have perfect credit and, even without having a good credit score, you can still get approved for a mortgage. Lenders look at things like having a steady income, your ability to pay your bills on time, and your debt-to-income ratio. Most conventional mortgages require a credit score of at least 620. However, mortgages such as FHA loans, have a lower requirement of 500. You may end up paying a bit more where interest rates are concerned, but you can still be approved for a mortgage.
Myth #3: You have to put down 20%.
This is not true. There are programs that allow homebuyers to make down payments as low as 3%, such as Fannie Mae and Freddie Mac. FHA loans allow for a 305% down payment, and VA and USDA programs let you make a 0% down payment. Even if you don’t qualify for these programs, you can still make down payments lower than 20%. You will end up paying a higher interest rate and mortgage insurance though.
Myth #4: You aren’t allowed to pay your down payment with a grant or gift.
As long as you can document the source of the gift and prove that it isn’t a loan you will have to pay back, you can use gifted funds to make your down payment. You can also use grants from sources, such as non-profit organizations for your down payments.
Myth #5: Getting a 30-year fixed-rate mortgage is the best option.
While this is a popular choice for many, you should look at all of the options available to you to choose one that suits your situation. If you think you will be moving in the near future, or are planning to fix a home and sell it right away, a shorter-term mortgage would be better and you would get a better rate.
Myth #6: You should go with the first lender that pre-approves you.
You aren’t obligated to use the lender that gave you a pre-approval. In fact, you should shop around in order to compare mortgage products with different lenders. The best way to do this is through a mortgage broker because it will protect your credit and give you access to a lot of lenders in one place.
If you are getting ready to buy a home and need information on what is available to you, give our Folsom mortgage lender team a call today!