Prior to buying or refinancing a home, it’s crucial to do your research about mortgage lending so that you know what you’re getting into. However, don’t just take everything you hear or read as gospel truth. A good example is these four common mortgage myths:
Mortgage Myth #1 – No one will give you’re a mortgage if you have a low credit score.
Most people believe that they could never qualify for a mortgage if they have a low credit score. While having a high credit score could be useful to get the best interest rate, you could qualify for some mortgage programs specifically developed for borrowers with less than stellar credit scores. Still a non-believer? Google FHA loans and see for yourself.
Mortgage Myth #2 – You need to put down a 20% down payment to purchase a house.
Many home loan programs enable borrowers to put down a down payment as low as 5%. And did you look up FHA loans yet? If not, take note that FHA loans require as little as 3.5% down payment.
Mortgage Myth #3 – Never take out an ARM or adjustable rate mortgage.
Although ARMs could be volatile, they also come with a fixed rate payment schedule of three or seven years. If you’re planning on refinancing your home loan or selling your home prior to a first adjustment period, you could actually save more since ARMs have lower interest rates during its initial years.
Mortgage Myth #4 – You won’t be allowed to refinance your home loan if you are underwater.
While traditional refinancing requires homeowners to have a minimum of 5% home equity, you could check out the HARP loan program, which is a government-backed refinance program that offers underwater borrowers the chance to refinance their homes.
Yes, getting the best mortgage deal could be fairly challenging because requirements significantly differ from one lender to another and from one program to another. However, as confusing and intimidating as the mortgage process seems to be, you’ll make it easier on yourself if you educate yourself, ask around, speak with lenders, and of course, learn how to distinguish mortgage fictions from facts.