Whether you are looking for a new home or are thinking of refinancing your current one, odds are you may find yourself researching and shopping around for the best mortgage option. With information on mortgages becoming more accessible, there are still many mortgage misconceptions that homebuyers believe to be true. Three of the most common mortgage misconceptions are:
The Lender will Use Your Highest Credit Score
Many buyers go into a home mortgage as a co-signer with a spouse or significant other. During the application process, your financial institution will ask for your social security number as well as sign a release authorizing them to pull your credit score. Many homebuyers believe that the lender will take the highest score out of the three from whichever signer has the highest points.
Unfortunately, this is not the case. Financial institutions will determine a median score from the three primary credit reporting agencies for each of the note signers. From these two scores, they will base their rates on the lowest number. Ensuring your credit score is maintained is important if a home mortgage is in the future. Read more about how your credit score is factored into your home loan here.
30-Year Fixed-Rate Mortgages are Always Your Best Option
Due to the housing crisis that hit in the early 2000s, many home buyers have come under the impression that 30-year fixed-rate mortgages are always your best option. While having a set rate for the length of your loan may sound appealing, many homebuyers don't plan on staying in their home for that length of time. If you are not planning on staying in your home for more than five years, an adjustable option may give you a significant rate reduction.
Some of the benefits of other types of mortgages include:
- Lower overall interest which can be gained from an adjustable rate or a shorter fixed term
- Lower monthly payments for the duration of the adjustable rate
- Ability to take advantage if rates significantly drop in the future without having to refinance
When deciding on your type and term of loan remember no two homebuyers are alike so choosing an option to fit your current and future needs are essential. Read more about 15 v.s. 30 Year Mortgages Here.
You Can't Get a Home Without a Large Down Payment
Many homebuyers still believe that to qualify for many of the loan options available they will need to have at least 20% down. While many lenders associate a higher down payment with a lower risk since there will already be equity in the home, there are loan options for those who may have less saved for their home.
There are mortgage options available for those who have little money to put down on a home. Two of the primary low down payment options include:
- FHA Loans - An FHA loan is a loan insured by the Federal Housing Administration. Borrowers will be required to purchase private mortgage insurance (PMI) to protect the lender but will be able to obtain a mortgage with a small down payment and less than perfect credit score. FHA loans can require as little down as 3.5%.
- VA Loans - VA loans are a loan option available to veterans, current service members, and their spouses. These loans do not require a private mortgage insurance premium and can be obtained with zero down payment. While these loans are offered through private lenders, they are backed by the Department of Veterans Affairs.
Avoid the three mortgage misconceptions above and many others by consulting with your lender about all of your available mortgage options. Don't let these misconceptions deter you from moving into the home of your dreams.
To find out more common mortgage misconceptions or to start on your journey to home ownership, contact the financial professionals at Rocky Mountain Credit Union today.
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