It’s a fact that the mortgage industry is complex and ever-changing, so it’s no surprise that there are many misconceptions. Instead of sifting through a sea of information online to get the answers to all of your common questions, check out this list of 4 common mortgage misconceptions to help ease your mind. Are they fact or fiction? Read on for more information.
Pre-qualified is the same as pre-approved.
Contrary to popular belief, these terms are not interchangeable. Getting pre-qualified by a lender allows the buyer to have an estimate of how much the lender will loan, but is not a guarantee. A pre-approval is assurance from the lender of exactly how much they are willing to loan.
ARMs are the best option because it has the lowest rate.
An ARM is a loan with an adjustable interest rate that varies throughout the loan term and results in varying payments. Many people lean towards 30-year fixed rate mortgages because they like the security of having the same payment for the term of the loan. It is wise to consider various loan types as each may have different features and may be more cost effective. 15-year fixed is best to build equity and net worth. As a rule of thumb, fixed rate mortgages are best suited towards long term homeowners, and adjustable rate mortgages are geared towards short term homeowners.
Down payments don't have to be 20%.
It is a common belief that without 20% down you cannot purchase a home, but that is simply not true. For example, FHA allows borrowers to purchase with just 3.5 % down, and VA offers veterans down payments of 0%. Also, certain communities offer different home buyer assistant programs to help lower down payment percentages.
Credit scores don't have to be perfect to qualify.
Some loan programs require stellar credit scores; however, others are targeted towards borrowers with lower credit scores. It is best to inquire with a mortgage lender to see which programs they offer before ruling out buying based on credit score alone. There are also ways you can improve your credit score when you're ready.
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