Whether you’re hearing mortgage myths from friends and family, or just finding the information online, finding out what it actually takes to become a homeowner can be difficult. We will fill you in on four common mortgage myths and give you the correct information so you feel confident moving forward as a future homeowner.
1. Myth: You Need 20% Down to Purchase a Home
One of the most popular myths out there is that you need a 20% down payment to buy a home. This is not true! If you go with a conventional loan, you can put down as little as 3% on your home. There are even some loans where you don’t have to put anything down on your home at all.
Where does this myth come from? Most likely this myth originated from lenders’ PMI (private mortgage insurance) requirement. If you have less than 20% to put down on your new home, your lender will require you to pay PMI. This protects your lender by compensating them in case you were to default on your home loan.
The PMI can be a costly addition to your monthly mortgage payment, but it does allow you to get your home without having to save up that 20% down payment!
2. Myth: Debt of Any Kind Will Keep You from Purchasing a Home
Many hopeful homeowners have been told they won’t qualify for a mortgage if they have any type of debt. This is also not true! As far as debt goes, what your lender will take a look at is your debt-to-income ratio. This is what percentage of your monthly income goes towards paying off your debts.
If your DTI is high, this makes you a risky borrower to your lender. However, if your DTI is lower than 50%, you will likely be able to obtain a mortgage loan.
Whether it’s student loans, credit card debt, or car payments, these debts will not keep you from being able to purchase a home. Speak with someone from our team today to learn more!
3. Myth: Your Credit Needs to Be Perfect to Get a Mortgage
While good credit certainly helps, if your credit is not the greatest, you may still qualify for a mortgage! Your credit score can be as low as 500 and you could still qualify for an FHA Loan. VA Loans require a score range of 580-660, and USDA Loans also have lower score requirements than a Conventional Loan.
Since credit isn’t the only thing your lender will look at when determining your eligibility for a mortgage, if you’re looking good in other areas (like your DTI and the size of your down payment), it can overcome a low credit score.
4. Myth: Pre-Qualified and Pre-Approval are the Same
Since both of these words sound very similar, it’s easy to assume they mean the same thing. However, this is not true. Getting pre-qualified for a mortgage is a way to see how much you may get approved for a home loan. To get pre-qualified you do not have to provide as much information, such as proof of income and debt.
Pre-approval is when you’ve supplied your lender with all of the financial information they need, such as employment, income, credit, and so on. Once this information is reviewed, your lender will provide you with an approval letter stating the amount you are approved for a home loan.
Your pre-approval letter is also going to give you a leg up when you begin the house hunting process, as it shows you are a serious buyer.
Ready to begin the homebuying process? Contact Team Crescenzo today to learn more and get started!