Seriously, how much do you really know about buying a home? It probably isn’t something you do every day, unless you’re a real estate agent or a mortgage loan specialist of course. So it’s understandable if the whole mortgage loan process is a bit mysterious. Let’s channel our inner detective and investigate some of the most common home buying myths and do a little myth-busting!
The belief: You always need to put at least 20% down on a home.
The truth: Fortunately, no! There are actually a number of programs that allow you to put down less than 20% on a home and, in general, feature less stringent requirements than traditional mortgages. Some industry insiders even refer to the 3% down mortgage as the “new normal”, introduced nearly two years ago from both Fannie Mae and Freddie Mac.
The belief: Renting is cheaper than buying.
The truth: Not always. The benefits of renting versus buying are primarily location dependent. To decide if it’s smarter to rent versus buy in your area, determine your break-even point—or how long you must live in a property to make it worth buying instead of renting and investing elsewhere. Actually, for many people, buying may be the better option.
The belief: It’s impossible to buy a home with less-than-perfect or limited credit.
The truth: A good credit score is not always necessary to buy a home, although it should help you get a lower interest rate. Among others, one of the most popular options for homebuyers with lower credit scores is an FHA loan, which has more lenient credit requirements and a down payment as low as 3.5%.
The belief: Pre-qualification is the same as pre-approval.
The truth: Not quite. Pre-qualification is a simple estimate of how much house you can afford and how much money a lender would be willing to loan you. It helps to get pre-qualified before you start house hunting so you have a range of how much you can spend. But it is an estimate based on the financial information you volunteer.
Pre-approval means that your lender verifies the financial information you gave them. Then they provide you with an official commitment letter that states that, subject to certain conditions, you will be approved for a specific loan amount and loan program. Pre-approval is based on verified financial documentation. It’s not just an estimate.
The belief: When you buy a home, your monthly payment is your principal plus interest.
The truth: That is the truth, but not the whole truth. Each month, your payment may also include a few other things, such as taxes, insurance, homeowner’s association fees, and other fees potentially rolled into your escrow.
The belief: You should go with the lender that gives you the lowest interest rate.
The truth: Cost matters, but so does the dependability of your mortgage company. Your lender will be advising you before, during and after you purchase your home, so it’s crucial to choose an established, credible company.
Also, consider the lender’s servicing capabilities. Will they service your loan? Do they have reputable, available customer service? Do they have digital tools to manage your account easily? Make sure you factor in all considerations!
The belief: A 30-year fixed rate mortgage is always the best deal.
The truth: The 30-year fixed rate mortgage is America’s most popular, but that doesn’t mean it’s right for you. For example, if you’re certain you won’t be in your home for more than a few years, an adjustable rate mortgage might make more sense—as it typically offers a lower interest rate and P&I payment during an initial fixed period (be it 3, 5, 7, or 10 years). Keep in mind the interest rate is not fixed forever, so after that initial period, it is subject to increase. That’s why it’s important to work with your lender to find the right mortgage loan option for you.
The belief: You’re alone in the home buying process.
The truth: Absolutely not! From your questions about the amount of the minimum down payment and your credit score to how much are closing costs, we’re here to help. Don’t let your fears of not knowing the ins and outs of mortgage financing keep you on the sidelines. Get in the game by taking one easy step; call a ditech Home Loan Specialist at 1-800-700-9212 to start your journey toward home ownership today. We’ve got the loans to take you home!