If you’re on the younger side of the generational teeter-totter you probably don’t remember a time where considerable energy was spent deliberating the existence of the Loch Ness Monster, Bigfoot, Bermuda Triangle, and the Abominable Snowman. This cornucopia of Twilight Zone-worthy content kept millions of TV watchers enthralled. This is what life before the internet was like. Dare we say, these were the same folks who today also believe you can’t pay off a mortgage early (you can) or that 700 is the minimum credit score required to qualify for a mortgage (it isn’t). Those are myths larger than Bigfoot’s nonexistent feet and when you’re in the mortgage world like we are one of our biggest jobs is to help our clients in their quest for the facts. So, let’s chop down a few tall mortgage tales together shall we?
First-time homebuyers step right up. You’d love to ditch that apartment but you’re nowhere near able to put 20% down and that’s what you need right to buy right? Actually, that’s a myth and it originates with private mortgage insurance. 20% is how much you need to not have to pay for PMI. In fact, thanks to special government programs, that picket fence you dream about can be yours for as little as 3% or even zero down! Ok then, raise your hand if you think your down payment covers your closing costs? Afraid to break it to you but you need to budget another $5000-$8000 of your loan toward the appraisal, title insurance, and Realtor® fees. Sometimes you can get the seller to cover a piece of that but please don’t count on it.
Let’s swing to the other end of borrowers. If you’re in or near retirement and are short on cash, you may believe you have to own your home free and clear to qualify for a reverse mortgage. Nope! Myth. Most borrowers, in fact, use reverse loan proceeds to pay off their mortgages. Want one more similar myth? Lots of people have been told a reverse mortgage means you’re selling your house back to the bank. Actually, you never relinquish your title so rest easy.
Let’s take a look at some myths about the approval and credit process that all people have whether they wear skinny jeans or are trying to “wash that gray right out of that hair” (that was an 80’s jingle by the way. YouTube it. We’ll wait right here). Have you ever heard that a prior foreclosure or bankruptcy will prevent you from financing a home in the future? Myth! It takes time to put that stuff behind you but you can do it. Everyone makes mistakes.
You know all those student loans you have? Are you out of luck? Sure, they do count but they are not deal-breakers. Now, more than ever, banks realize that if you’re at the age where you’re buying your first home it’s very likely you have some debt left from all those late Saturday nights you spent studying. Right. Studying.
One scary part about applying for a mortgage at all is it will hurt your credit, right? Technically, that’s true for a minute. Your score does go down a bit but soon your credit score will return to where it was. And if your application is rejected that must really hurt your credit huh? Myth again. The result of your home purchase only matters if it closes. Until then, it all looks the same to a computer. Whether you are accepted or denied your credit only reflects that people checked your credit. Like that, you know how you better not apply for multiple loans because they will each count as individual dings on your credit? The good news is even the financial system realizes you could get checked every time you consider a purchase, so they are all bundled as one cluster of activity. The same, by the way, applies to buying a car.
Pre-Approval vs Pre-Qualification
Final question, is it a fact that mortgage pre-approval and pre-qualification are the same thing? Nope! Myth. If you want to know more about that, read this amazingly exciting blog we wrote on the topic.
If we tackled all the myths in the mortgage world you’d still be reading. Technically you are still reading but you knew what we meant. The point is you need facts, not myths before making an important financial decision like buying a house and we have them for you.