4 of the Biggest Mortgage Myths Debunked for First-Time Home Buyers
At times, getting a mortgage might feel like a mystery, especially if it’s the first time that you are doing it. If that’s not enough, there’s plenty of outdated and incorrect information out there that can mislead you.
That’s why it’s vital that the record is set straight. With this in mind, here are six of the most prevalent misconceptions regarding mortgages and how they have misinformed a majority of first time home buyers.
Getting a Pre-Qualification Is Similar to Getting Pre-Approval
Despite these two terms sounding more or less the same, they are entirely different.
For starters, pre-qualification is a process that can happen in a matter of minutes simply when you answer a number of queries regarding your current financial situation. On the other hand, the pre-approval process is quite taxing.
That’s because, in such a scenario, your finances will be first vetted by the lender before they can make a decision regarding your mortgage application. In the event that you are approved, you will then be awarded a maximum loan amount as per the allowance that the bank is willing to provide you with.
Indeed, in today’s world, a pre-qualification is not that important. Hence, borrowers prefer to have a pre-approval which provides a vivid explanation of your ability to be able to buy the home in question.
Hence, when you are looking to purchase a home, make sure you get a pre-approval first and don’t pay so much on a pre-qualification.
You Will Tarnish Your Credit Score When You’re out Here Searching for Lenders
While it’s a fact that making multiple inquiries regarding a mortgage can dent your credit score, you should be aware that not all inquiries on credit are handled the same way. For starters, FICO permits for rate shopping by regarding all inquiries made within a 30-day time frame as one inquiry.
Which means that you can get access to as many lenders as you wish as long as you do so within the 30-day time-frame.
Additionally, while shopping around, ensure that you find the best interest rate around because it is crucial to do so when purchasing a home. A mere fractional difference of a percentage point can result in a huge difference.
In fact, it could mean your accruing thousands of dollars in interest that you will still have to pay back as part of your loan. Conventional wisdom states that you should pay a visit to at least five lenders before you make the crucial decision on who to pick.
You Need a Great Credit Score to Get an Awesome House
Let’s face it. Your credit score might not be the best on the planet. Nevertheless, this doesn’t mean that you won’t be able to purchase at home.
Despite the fact that most loans require you to have a credit score of at least 620, any loan that has the backing of the FHA (Federal Housing Administration) only recommends that you have an approval of 580.
That being said, you can still look for other options such as finding a co-signer or giving the green light to make a bigger down payment so that you can secure the services of a lender.
Keeping this in mind, you should be aware that the interest rate you will be given is highly dependent on your credit score. Hence, you might end up saving much more if you happen to have a decent credit score.
Moreover, you can raise your credit score by also meeting all the monthly payments of your mortgage and making the habit of paying way above the minimum monthly payment.
It’s Impossible to Be in Debt and Still Purchase a House
Yes, it’s pretty obvious that being in debt affects your ability to purchase a home.
However, with a large number of individuals still being riddled with loans such as car payments and student debts, it’s far-fetched to believe that anyone who is looking to buy a home will be free of debt.
On the other hand, what matters is the debt that you have in relation to the income that you get. So when mortgage companies analyze your loan application, one of the things that they scrutinize is your debt-to-income ratio.
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