Owning a home is on most everyone’s wish and to do list. However, one thing is certain, when it comes to mortgages there is a lot to know and understand. In my work as a real estate investor and a mortgage broker I have come across many myths about mortgages that people believe to be true. One of the things I love to do is educate and help people with real estate, so with that in mind, here are some of the most common myths and the true facts about them.
1. A pre-approval means that I am fully approved for the house of my dreams
A pre-approval is an in-depth process where all borrower’s financial details, credit and other information are checked. You can be confident in knowing what you can and cannot afford to buy and any issues with your situation can be addressed before you go house hunting.
A pre-approval is a great thing to have and I always recommend it as it shows financial institutions and sellers that you are serious about buying a home.
The myth here is that being pre-approved does not mean you are 100% guaranteed to be approved for a house once you have an accepted offer. Once you have an accepted offer on a house, the financial institution will once again look at all your information, documentation as well as the property details before approving the mortgage.
2. You must make at least a 5% down payment from your own savings
Most people are under the wrong assumption that you need to totally save up for the minimum 5% down payment. Although 5% is required, there are other ways to obtain it other than saving for it over time.
Some financial institutions allow you to borrow the 5% from such things as a line of credit, a credit card, or a personal loan.
Gifted down payments from an immediate relative can also be used for the down payment provided there is no requirement that the money be paid back.
3. My bank will give me the best mortgage rate
In my years as a property owner and a mortgage professional, I have found this to rarely be true. Most banks treat the mortgage process like shopping for a car. You have to negotiate the best rate with them. The problem is that most people don’t realize their own bank is not giving them their best rate up front and therefore don’t request a lower rate. A lot of people are therefore paying way too much for their homes, sometimes up to thousands of dollars over the course of the mortgage term.
4. You can’t get a mortgage if you have a low credit score
Although it might be true that you won’t be able to get approved at one of the major banks or mortgage companies, there are other financial institutions that specialize in granting mortgages for people with less than perfect credit. You might have to put in a higher down payment and possibly pay a higher interest rate due to the increased risk, but it’s still possible.
It also makes sense to work with your mortgage professional as it just might be a matter of making a few simple changes or possibly even adding a co-borrower to strengthen your mortgage application.
5. I have to pay to use a mortgage broker
A mortgage broker does not charge you for their services. When they successfully arrange a mortgage for their clients, the financial institution pays their brokerage a commission or finders fee. This fee is not added to the cost of your mortgage or included in your interest rate you are charged.
So there you have it, some true facts about mortgages. There is so much to know about mortgages, interest rates and credit. The best way to ensure you’re receiving accurate and applicable information is to speak with an experienced mortgage professional about your financing needs.