Buying a home is a dream for many people. Securing a mortgage has helped many people realize their dream of homeownership. Unfortunately, the process of applying and closing on a mortgage can be a bit intimidating at times. By debunking these common myths, you will have a better understanding of mortgages.
Excellent Credit Is Mandatory
One of the most common myths people believe is that excellent credit is mandatory for securing a mortgage. While it is true that great credit will help you get approved with a great interest rate, buyers can still be approved without perfect credit.
Today, there are many programs available for buyers with less-than-perfect credit. For example, buyers with a credit score of 580 can qualify for an FHA loan. Other options to secure a mortgage with poor credit include having a co-borrower or providing a higher down payment.
If you do not have great credit, talk to your lender about programs that you may qualify for. You can also spend time improving your credit before you start the application. Pay down the balances on your credit cards and loans. Also, increase the available credit limits on your existing credit accounts. This will improve your debt-to-net ratio.
Large Down Payments Are Required
Another myth buyers believe is that they cannot secure a mortgage to buy a home without a large down payment. Again, this is a myth, since you can secure a mortgage without a large down payment. In some instances, you can be approved for a mortgage without a down payment at all.
FHA loans require very little down. On average, a buyer who is using an FHA loan to buy a home will only need to put down 3.5 percent. Compared to the traditional 20 percent down conventional mortgages ask for, the 3.5 percent down is a great option.
It is important to remember that a larger down payment is helpful. The more money you are able to pay down on the home, the lower the amount financed will be. Therefore, putting down a larger amount will ensure your payments are lower.
You Shouldn't Shop Around
Finally, many people feel they should not shop around to find a better deal with other banks/lenders, but shopping around can actually be beneficial.
Even if you have a long-term relationship with your bank, you should still shop around to determine what lenders are offering the best interest rates on mortgages. You do not have to go through the full application process, but the lender will require a prequalification to determine how much home you qualify for and for what interest rate.
Contact local mortgage companies to find out more about their mortgage rates.