True or False? 5 Fallacies About Mortgages You Should Know About
As a home buyer, you probably spend way more time looking for the perfect home than you do learning about the mortgage process. The truth is, mortgages can be a tough concept to grasp.
Unless you buy a property a couple of times a year, you probably don’t fully understand the process from A to Z. And with all the myths about home loans floating around out there, you might find it hard to decipher what’s true and what’s not.
The following are 5 common myths about mortgages, and the truth behind them.
1. You have to stick with the same lender you were pre-approved with.
You have no obligation to get your mortgage with the same lender who pre-approved you in the first place. Getting this conditional agreement before signing a purchase agreement for a property is a helpful step that gives you an rough estimate of how big a loan a lender would approve you for.
But you don’t have to use the same lender when it comes time to get the mortgage you need to purchase a property. In fact, you’d be well-advised to get a few quotes from different lenders before you even proceed with the mortgage process.
2. You need to put at least 5% towards a down payment to be approved for a mortgage.
A lot of home buyer hopefuls are under the impression that at least 10% or even 20% of the purchase price of a home is needed up front before getting approved for a mortgage. This is a common misconception.
While it’s better to put as much as possible towards a down payment, you can put as little as 3.5% down and often get approved for a home loan through the Federal Housing Administration (FHA). These types of loans are popular for those who don’t have a large sum of liquid cash, or have a tarnished credit score.
3. Refinancing is impossible if you’re in the red on your mortgage.
Being underwater on a mortgage is not an uncommon situation. In fact, there are currently millions of homeowners in the US who are in the red on their home loan, and many of them falsely believe they are unable to refinance their mortgage because of it.
The government currently offers two programs for folks like these to refinance. One is the Home Affordable Refinance Program (HARP) that’s available for homeowners who have a mortgage backed by Fannie Mae or Freddie Mac. The other option is the FHA Streamline Refinance that’s available to help homeowners with loans insured by the Federal Housing Administration (FHA).
Refinancing can be an excellent way to lower the interest rate on mortgages and significantly reduce mortgage payments with hardly any cost.
4. You have to wait 7 years before being approved for another mortgage if you went through a short sale.
Going through a short sale isn’t fun, but you don’t have to be an eternal renter afterwards as a result. A common misconception out there is that 7 years need to pass after a short sale before you can get approved for another home loan.
For the most part, you’ll only need to wait about two to four years following a short sale depending on the type of mortgage you want and how much you can fork over for a down payment.
5. You can get the best loan rates with the bank you currently do business with.
Lots of home buyers automatically head to their bank to get a mortgage for a home they wish to purchase. But many times this is a big mistake.
In fact, you’re probably better off dealing with an independent mortgage broker who will shop around with a number of different lenders to see who’s willing to give you the lowest interest rate possible. Getting quotes from a bunch of lenders and comparison shopping will probably work in your favor, rather than just settling for whatever your bank is willing to offer.
You might want to take the advice of your friends, neighbors and family members about mortgages with a grain of salt, because it’s possible that the info they’re passing on isn’t entirely true.
Before you believe what the next guy tells you, it’s probably wise to chat with a mortgage broker or real estate professional to keep you up to speed with all the ins and outs of mortgages before you jump into your next home purchase.
