Common Mortgage Myths to Know When Purchasing a Home

Although mortgages offer an excellent way to start your homeownership journey, numerous misconceptions and outdated information surround them. As such, getting a mortgage can be daunting as potential homeowners navigate through the myths and incorrect data. Debunk five common mortgage myths so you can start the mortgage process confidently.

You Need a 20% Down Payment

In the past, did you pay a 20% down payment to purchase a home? Today, things are different, and you don't need that much initial payment. In fact, many programs are available for people who don't have a hefty down payment.

For instance, you only need a 3.5% down payment with an FHA loan, while VA loans don't require money down. Also, you can get help raising your down payment from different down payment assistance programs and grants. Your lender can shed more light on such programs.

You Require an Excellent Credit Score

You don't need a credit rating of 800+ to secure a mortgage. Although your credit score affects the interest rate and pre-approval, it does not have to be perfect. With a score of 620, you can get a conventional loan and 580 for an FHA-backed loan.

If your credit score is not too good, you can still get approved for a mortgage when you meet conditions like making a large down payment and having a co-signer. Moving forward, you can enhance your credit score by paying your premiums on time with more than the minimal amount.

You Can Only Use Your Current Bank to Get a Mortgage

Although you have established a relationship with your current bank, this does not mean that they are the only lenders that can offer a mortgage. The bank may send you countless emails to advertise their incredible mortgages and excellent rates, but make sure to shop around.

You can attain better offers from other banks or lending institutions and save money in the long run. A small variation in the charged interest can make a difference, and you can achieve massive savings in the loan's life. Consider contacting three or more lenders before making a decision.

Your Pre-Qualification Is the Same as a Pre-Approval

Many people mistakenly believe that getting pre-qualified is similar to getting pre-approved. Typically, pre-qualification takes a few minutes, and you respond to simple questions concerning your finances, such as income, employment, credit status, and debts.

On the other hand, pre-approval goes further to verify the information you provided during the pre-qualification process. It is more thorough and gives an accurate picture of your finances and potential for purchasing a home. However, pre-approval does not guarantee a mortgage. Incurring additional debts and changing jobs can result in mortgage denial after pre-approval.

You Pay More to Buy a Home than Rent

Contrary to popular belief that renting is less expensive than purchasing a home through a mortgage, it is not. Also, some people affirm they cannot afford to buy a house yet pay a substantial amount of rent. A mortgage is more cost-effective than renting in two senses.

First, every time you pay your mortgage, you attain equity in your home. This means that you invest every month as opposed to renting, whereby you don't get any equity. Second, your monthly mortgage payment is fixed, and you incur the same amount throughout the loan's life, which is usually manageable and easily budgeted. Contrary, rent rates can surge as different economic factors come into play.

Purchasing a home is a significant milestone for many people. If you have considered a mortgage, separate the truths and facts from misconceptions and half-truths to make a shrewd decision.

Contact Cornerstone Residential Mortgage for sound mortgage advice and help identifying the perfect mortgage for your needs and finances. We have many loan programs and options, and you can use multiple lenders instead of one.