Want to be smarter than the average mortgage borrower? Here are five common mortgage myths and the truth behind them. Read on, and you may gain an advantage when deciding what direction to take with your home financing.
1. You need a 20% down payment to buy a home
Historically, many homebuyers were required to make a 20% down payment to finance the purchase of a home. For a $250,000 property, that meant ponying up $50,000 in cash. Today, there are popular mortgage options that allow down payments as low as 10%, 3% or even 0% in some cases. Certain borrowers may also qualify for down payment assistance programs that can further decrease their down payment expenses. These options make it possible for more people to become homeowners sooner or put their money to use elsewhere.
2. You must have great credit to get a mortgage
You don’t need a spotless credit history and a sky-high credit score to buy or refinance a home. There are numerous home financing options available for people with less-than-perfect credit. At Draper and Kramer Mortgage, we provide financing for borrowers with credit scores as low as 580, and we may have niche solutions or exceptions available for people with lower scores. You may also be able to get a mortgage just a couple years after a foreclosure, short sale or bankruptcy.
3. The mortgage rate you see advertised is the one you can get
Everyone loves getting a good deal, but comparison shopping for mortgages is tricky. Most companies who advertise their mortgage rates only show the rates that are available for “best case” situations. These typically assume the borrower has a high credit score, low debt and a large down payment and is financing an owner-occupied single-family home. Speaking with your lender to get a personalized quote is the best way to find out what rates are available to you.
4. A fixed-rate mortgage is right for everyone
Fixed-rate mortgages are popular because they offer the security and predictability of an interest rate and a monthly principal and interest payment that will never change. However, compared to similar fixed-rate loans, adjustable-rate mortgages (ARMs) often have lower interest rates during their fixed-rate intro periods. Since most people sell or refinance their homes within 10 years of buying, ARMs can end up being the cheaper option for borrowers who don’t need a long-term fixed rate.
5. You should always pay off your mortgage as soon as possible
Many people look forward to the day they pay off their homes and say goodbye to their mortgage payments. However, it doesn’t always make financial sense to pay off your mortgage early. Since home loans typically have low interest rates, homeowners may see a better “return” by using their extra funds to pay off higher-interest debt (e.g. credit card balances) or contribute to high-return investments (e.g. stocks and mutual funds) rather than paying off their mortgages early.
Never assume the home financing you need is out of your reach. Your options may be more accessible, flexible and affordable than you think. Get in touch for your free quote, consultation or preapproval to learn what financing is available to you.