If you’re looking to get a mortgage soon: be warned: it can be a confusing process. You will want to be informed, so let’s debunk 5 common mortgage myths.
1. Myth: There is no difference between getting pre-qualified and pre-approved
Fact: While the two names seem similar, they are in fact different. A pre-qualification is when you answer a few questions about your situation and can be done within minutes. However, a pre-approval is more in-depth. Your information is inspected by a loan officer, you may provide documents to back up your situation (paystubs, tax returns, W2s, etc.), and your loan is run through the governments automated approval system. These days pre-qualification isn’t worth the paper it’s printed on. Real estate agents are much savvier and they want something more accurate.
2. Myth: My credit score must be perfect to buy a house
Fact: Your credit report does not need to be spotless in order to buy a home. Different loan types allow for different minimum credit scores, some require a minimum of 620, while others go down to 580. Sure, the higher the credit score the better your interest rate, so keep your credit as clean as possible. But it’s not just the credit score that lenders are looking at, it’s also your credit history. Do you have a bankruptcy or foreclosure on your credit report? Again, there are different waiting periods for different loan types. The only way to know for sure if your credit is going to stop you from getting a loan is to speak with Team Rebecca. And if there is work that needs to be done before you can buy, Team Rebecca will help you come up with a plan and hold you accountable to it.
3. Myth: I cannot have any other debt and buy a home
Fact: Yes, the more debt you have, the lower loan amount you will qualify for, which leads to a lower price home. However, the vast majority of people applying for mortgages have items on their credit reports like student loans, car payments and personal loans. It would not be realistic to require people to be debt-free in-order to purchase a home. Instead, what really matters is how much debt you are carrying compared to your total income. This is called your debt-to-income ratio and different types of loans have different maximum ratios when it comes to debt-to-income.
4. Myth: I cannot purchase a home until I have 20% down.
Fact: Depending on the loan type, you may be able to purchase a home with no down payment. However, most people are required to put down 3.5% or 5%. If you do not have a full 20% down, you will have some type of mortgage insurance that you will pay monthly with your mortgage payment, or you may be able to buy out of it at the time of settlement. Mortgage insurance allows you to afford a higher price home for the same money out of pocket if you were putting 20% down. Speak to Team Rebecca to see what is in your best interest and what options are available for you.
5. Myth: The only money I need at settlement is my down payment
Fact: Yes, you will need your down payment ready for the day of settlement, but you will also have closing costs that need to be paid. Your closing costs will vary off the price of the home, and they cannot be financed into your loan. You are allowed to ask the seller to give you seller’s assistance to help pay some or all of your closing costs. Now seller’s assistance (also called seller’s help) is something you need to negotiate when writing your offer and different loan types have different maximums you are allowed to receive from the seller. Keep in mind, both down payments and/or closing costs can be paid by your own funds, gift funds from a relative, and/or county grant funds, if available.
To find out more information give Team Rebecca a call at 717-609-4044 or go to our website: www.RebeccaFoote.com