5 Mortgage Myths
Buying your first home can be a difficult task if you aren’t aware of these mortgage myths. Check out how we bust these 5 mortgage myths.
1. Do You Need 20% Down To Buy A Home?
Do you need 20% down to buy a home? No, you don’t! You can get a conventional loan with as little as 3% down, and some government-backed loans can have a 0% down payment. The myth of putting a 20% down payment comes from PMI or the private mortgage insurance requirement.
PMI offers your lender protection if you default on your mortgage. If you choose to put less than 20% down, your lender can require you to get a PMI, which can increase your monthly mortgage payment. By placing at least 20% down on your mortgage, you can avoid this additional cost. However, if you get a mortgage with a PMI, you can cancel the PMI once your home has accrued 20% equity.
There are also some mortgages, such as USDA and VA Loans, that do not require PMI.
2. Prequalification And Pre-Approvals Are The Same Things
False, the main difference between prequalification and pre-approval is the level of verification your lender does before you receive an estimate. Prequalifications only require general financial information and can ultimately give you a general sense of where you stand on your home buying journey. Pre-Approvals, however, is an in-depth analysis of your financial standing and gives you a clear picture of what you can afford.
Thus, financial experts suggest getting a pre-approval as this is one of the best ways to ensure your home buying success. If you are starting on your home buying journey, you can get prequalified by a variety of lenders, allowing you to choose which best fits your needs.
3. You Can’t Pay Your Mortgage Off Early
Much like car loans, your mortgage loan can have prepayment penalties; this is a clause written in your contract prohibiting early pay off of your loan. Lenders earn money on the interest accrued on the principal amount you borrowed. If you pay off the loan before the estimated “final payment,” your lender can require you to pay a fee upfront equal to the amount they would have gained from the interest on your loan.
However, many mortgage lenders offer loans with no prepayment penalties. If you are in the process of buying a home and know you’ll be paying the loan off early, be sure to ask your lender about prepayment penalties.
4. You Need Perfect Credit To Buy A Home
While, credit plays a crucial role in the home buying process. It is not the end all be all of your home buying success! There are a variety of mortgage loan options for home buyers with less than perfect credit score. FHA loans for example, are a great option for first time home buyers with not so great credit scores. You can put down as little as 3.5% and have a credit score as low and have a credit score as low as 580.
At VanDyk Mortgage we help thousands of homebuyers, who might have been turned away from other lenders, achieve home buying success!
5. Down Payments Cover Your Closing Costs
Most home buyers are so concerned with the down payment that they miss some of the other fees that come into play in the home buying process. Closing costs for example, are the fees associated with your lender assisting you in finalizing the loan. Things like the homes appraisal and your title insurance are example of the services included in this fee. While closing costs are due at the same time as your down payment, they are a separate cost that varies in price between 3%-6% of your total loan balance.
If you are unable to pay the closing costs for your home, in some cases you may be able to have the seller cover these costs, but there are limits to how much they can offer based on your loan type.
If you thinking about starting your home buying journey consider VanDyk Mortgage, we help thousands of families each year achieve home buying success. Our Loan Officers and Operations are some of the best in the business, we are knowledgable and dedicated to helping you reach your goals.