7 Common Mortgage Myths

There’s a lot of uncertainty surrounding the mortgage industry right now. We saw a record-breaking rise in rates in 2022 and an increase in the median length of homeownership by five years in the past decade. These changes have made the homebuying process increasingly challenging to navigate and salient.

As we’ve seen throughout history, fear leads to misinformation. Our goal is to make sure you’re in the know when making decisions that matter to you and your family. While mortgage rates are widely expected to drop this year, it’s natural to feel uneasy about the home financing process as a whole. We listed and debunked seven of the top myths surrounding mortgages to ensure you’re equipped to make a home financing decision you feel confident in.

Myth #1: To purchase a house, you need a down payment of 20% of the home’s purchase price. 

Many people believe that you need to put down twenty percent when purchasing a new home. This is not true — there are a variety of established programs that provide much lower down payment options.

Mortgages can be obtained through the Federal Housing Administration (FHA) for as low as three and a half percent. FHA loans are available to everyone, whether you are a first time home owner or have a low credit score. Programs are also available through the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA) that require little or no money down.

To estimate your down payment, try our calculator.

Myth #2: Your interest rate reflects the true financial cost of your mortgage.

Your interest rate is a part of calculating the true cost of lending, but it does not include mortgage insurance and other required fees. Your annual percentage rate (APR) is the closest figure to reflect the cost of your mortgage. 

If you’re unfamiliar with what an APR is and how to use it, you’re not alone. Reportedly, 51% of people don’t know how to use an APR to evaluate offers. Make sure to compare your APR, not your interest rate, to gain a better understanding of your actual expenditure throughout the life of the loan.

Myth #3: A 30 year fixed mortgage is the best option.

If you plan on living in your house for a long time, this could prove true. However, if you plan to live in your house for around seven to ten years, it may be better to take out a short loan. The interest rates will increase on mortgages with longer fixed rates, and you likely do not want to pay a higher rate on a house that you plan to sell.

Myth #4: There is a law that requires all lenders to charge the same fees for appraisals and credit reports.

No laws exist that require lenders to charge the same fees. Some lenders may waive fees as a signing bonus, while other lenders may have higher non-negotiable fees. Make sure to compare rates before settling on a specific lender.

Myth #5: The best mortgage interest rates will come from the bank where you hold a checking account.

Some banks offer a discount to customers who already bank with them, but it is not a common practice among lenders. Compare quotes from your bank as well as multiple other lenders to find the mortgage rate and terms that work best with your finances.

Check out this article about what affects mortgage rates.

Myth #6: Once you are pre-approved with a specific lender, you must go through them to acquire your loan.

Having a pre-approved loan with a specific lender does not lock you into getting a mortgage from them. It merely states the size of the loan that the lender would be willing to fund for you. This amount is typically calculated by verifying your income and utilizing a credit check that the lender attains when you apply for a loan. 

Pro Tip: Always get at least three loan quotes from different lenders before deciding to go ahead with a mortgage.

Myth #7: When obtaining a loan with your spouse, the lender will weigh your credit reports equally when determining your interest rate.

If you are applying for a mortgage with your spouse, lenders will gather credit reports for each of you through three different credit reporting agencies. These agencies are typically Equifax, Experian, and TransUnion

Lenders take the middle score from each agency and drop the highest score. This leaves the lowest two scores to determine the interest rate of your mortgage. This effectively means that the person with the lower credit score will have the biggest impact on your interest rates.

Chris Doering Mortgage is Your Guide to the Mortgage Industry

The housing market is in a period of transition, so it’s important to make sure you know what is helpful to consider when making financing decisions and what is misinformation. The more knowledge of the mortgage industry you have, the smoother the process of purchasing a new house will be.

The mortgage experts at Chris Doering Mortgage are here to assist you every step of the way. For a consultation, contact us today!