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You may have heard your share of the mortgage myth over year. It is very difficult to know what is real and what is fiction. When you’re looking for a new home, there’s no better time to find out the truth. We discovered five myths that have become popular home-buying trends.
Myth#1 You must have 20% Down Payment
While a 20% down payment on a home is ideal, many people don’t put that much weight on it. In fact, the minimum down payment required is 5% of the purchase price (for homes $500,000 or less).
Myth#2 It’s best to pay off your mortgages asap:
While a mortgage upfront may seem like a good idea, it may not be the best way to use your money. If you were able to get a low interest rate on your mortgage, ask a tax professional or financial advisor if your dollars could earn you more than your interest rate if you invest your money instead, for paying off the mortgage early.
Myth#3 Always opt for a 30 year fixed rate mortgage:
If you plan to stay in your home for several decades, a 30-year mortgage can be beneficial. But if you know you’ll be moving out in 5 or 10 years, an adjustable-rate mortgage (ARM) might make more sense. In fact, with ARM, you can benefit from a lower fixed referral rate and keep it for five years or more. Also consider shorter mortgage terms, such as a 15-year mortgage. While a 30-year mortgage may offer a lower monthly payment, you may end up paying a higher interest rate than a short term loan. By looking at different situations and entering your numbers into a mortgage calculator, you may discover a better option.
Myth#4 You need a near-perfect Credit Score
While a high credit score can help you get a lower interest rate on your loan, you can still qualify for a mortgage with a moderate score. If you earn a steady income and pay your bills on time even though your credit may have a few bruises, you may qualify. To compensate for the less positive elements of your credit history, you can, if needed, offer a larger down payment or demonstrate a low debt-to-income ratio.
Myth#5 Get pre-approved and you are guaranteed a loan
While pre-approval is an important step in the mortgage process, it doesn’t mean you have received a loan. After making an offer to buy a home, the lender can check your credit again. If any new negative or obligations appear on your credit report since you pre-approved that could affect a potential loan offer. While you are at this stage of the process, your payment history and the nature of your debts may still be under review, so it’s best to avoid large purchases, such as a car, new car can apply for an additional credit card. Undoubtedly, more legends. Before taking conventional wisdom at face value, your research will help separate fact from fiction. In addition, your specific circumstances always play an important role in how you obtain or set up a mortgage. Talk to a loan officer to learn more.