7 Common Myths About Mortgages

Common Myths About Mortgages

Buying a home is not something that happens often in an individual’s life. Once a family purchases a home, it will take at least seven to ten years for the same family to purchase another. Someone who is in the market for a new home most likely did not spend a lot of time educating themselves about mortgages. This is why we have come up with a list of the top seven myths dealing with mortgages and the mortgage industry to increase your understanding of the subject before deciding to make a large purchase.

Myth: To purchase a house, a down payment of 20 percent of the total cost is required. 

Many people believe that you need to put down 20 percent when purchasing a new home. Sometimes having ten percent can be a struggle, but a mortgage 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 a person who may have a blotched 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 learn more about what is needed to buy a home, click here.

Myth: Your interest rates reflect the true financial cost of your mortgage.

Your interest rate is a part of your mortgage, but that does not include mortgage insurance and other fees that you need to pay. Your annual percentage rate (APR) is actually the closest figure to reflect the cost of your mortgage, so make sure to compare this rate to gain a better understanding of the expenditure throughout the entire life of the loan.

Myth: A 30 year fixed mortgage is the best optionMyth: A 30 year fixed mortgage is the best option

There could be some truth to this myth, if you plan on living in the house for a long time. If you plan to only live in the house for around seven to ten years, it may be better to take out a loan with a fixed rate for that amount of time. The interest rates will increase on mortgages with longer fixed rates, and you do not want to pay a higher rate on a house you plan to sell.

Myth: There is a law that requires all lenders to charge the exact 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, which can make them seem more appealing. Other lenders may have higher non-negotiable fees, so make sure to compare rates before settling on a specific lender.

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

Some banks may 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.

Looking for more information about mortgage rates? Check out a recent blog post about what affects mortgage rates.

Myth: 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 verifying your income and utilizing a credit check that the lender attains when you apply for a loan. Always get at least three loan quotes from different lenders before deciding to go ahead with a mortgage.

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

Young Couple looking for new homeIf 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. Then, they take the middle score from each agency and get rid of the highest one. 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.

Want to Learn More About Mortgages?

The housing market is booming right now, so make sure you know the difference between a myth and the truth when you are talking to a lender. The more knowledge of the mortgage industry you have, the smoother the process of purchasing a new house will be for you.

A house with the perfect mortgage rate and terms is waiting for you. The mortgage experts at Chris Doering Mortgage can assist you in every step of the way. For a consultation contact us today!