The first step in buying a house is usually research. As a first-time homebuyer, or even a real estate guru, you want to make sure you are well-informed about the mortgage process to avoid any surprises. In the case of research, you are likely to come across some helpful information, and some not-so-helpful information. There are a few mortgage misconceptions out there, and in this blog, we will debunk 5 common mortgage myths.
1. Myth: You need a perfect credit score to get a mortgage.
While a credit score is an important factor in getting a mortgage, you do not need a perfect score to get a mortgage. Lenders consider a credit score above 620 good for a mortgage application, but you can still qualify for a mortgage with less-than-perfect credit. A good mortgage broker can provide you with options for your credit score.
2. Myth: You need a 20% down payment to buy a house.
A larger down payment can lower your monthly mortgage payment and help you avoid private mortgage insurance (PMI), but there are options available for borrowers who can’t afford a 20% down payment. The minimum down payment required to purchase a house depends on the purchase price of the home. For homes with a purchase price of $500,000 or less, the minimum down payment is 5% of the purchase price. For homes with a purchase price between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000 of the purchase price, and 10% of the portion of the purchase price above $500,000. For homes with a purchase price of $1 million or more, the minimum down payment is 20% of the purchase price.
3. Myth: You should always choose the mortgage with the lowest interest rate.
Although interest plays an important role in the cost of your mortgage, you should also consider other factors when choosing a mortgage like a loan term, prepayment penalties and mortgage portability. While a low-interest rate can save you money over the life of the loan, it’s not the only factor to consider.
4. Myth: You should always choose a 30-year mortgage.
A 30-year mortgage is a popular choice because it means lower monthly payments, making it easier for buyers to qualify for larger mortgages. However, it may not be the best choice for everyone. A longer loan term may not save you money in the long run as you will be spending more on interest.
5. Myth: Your mortgage payment will stay the same for the life of the loan.
With a fixed-rate mortgage rate, your interest rate stays the same for the life of the loan, and your monthly payments are predictable. However, your payment can still change if your property taxes or homeowners insurance rates go up. You also have the option of getting a variable-rate mortgage which offers less predictability but may offer a lower interest rate.
Choosing a mortgage is an important decision. Make sure you have the right information from the right source. We can help answer all your mortgage questions to help you stay informed and make the best choice. Contact us today!