Mortgage Myths

Many of you “would-be” first time homebuyers delay getting preapproved because you don’t know how the home loan process works, you think you to have a lot of money saved up, or you fear rejection in the loan approval process. So, let’s talk about a few of the mortgage myths:

  1. You have to have 20% down to get into a home. The FHA Home Loan allows as little as 3.5% down payment. The VA Home Loan is zero down. And even the 30 year fixed rate conventional home loan allows as little as a 3% down payment. Closing costs average $3,500, but in some loan programs, plus potential lender credits, most of that can be covered with a down payment assistance program.
  2. You have to have a credit score over 700. FICO credit scores impact your interest rates, the better your score, the lower your interest rate may be. FHA Loans allow as low as a 620 FICO score, and in some situations, you can get approved with a FICO as low as 580.
  3. Renting is cheaper than buying. Most of the neighborhoods within our tri-county area still have an affordability rate higher than the state average. Even in some of the more desirable areas such as Folsom, the break even point averages 2.4 years, which means in 2 years, 5 months, you are paying less out of pocket than if you had continued to rent over the same period of time. Rents go up every year. A fixed rate mortgage locks in your monthly housing costs at the same cost over the life of the loan.
  4. If you don’t have kids, then the schools don’t matter. This may be true for as long as you are in the home and kid free, but when you go to sell the home, being in an undesirable school district can affect your resale, as well as your home value. Unless you are in a condo, that is mostly singles and couples, taking the schools into consideration is never a bad thing.
  5. New homes don’t need a home inspection. Your lender will require a home inspection regardless of the age of the home. It protects their investment and your money as well. New homes can have just as many problems, that’s why they have a “punch list” to correct anything incorrectly done. You just never know what a home inspector may find.
  6. You have to have money in the bank. Some assets, such as funds in a 401K can be used in most situations for the down payment and closing costs. With some loan programs you can also use “gifted” funds, where a family member gifts you the money for all or part of your out of pocket expenses.
  7. Interest rates are too high. For over half a century, and as long as they have been tracking interest rates, the average interest rate is well over 8%. Currently we are at half of the average, hovering around 4%. We are still at historic low interest rates. Even if the rates slowly increase over time, locking into today’s rates for the next 15-30 years can be a great bargain, and help you build wealth through homeownership. The sooner you purchase, the sooner you will build equity.

Well, that’s the top 7 myths I hear from our clients. I hope this helps you as well. Remember, there are a lot of down payment assistant programs designed to help the first-time homebuyer with down payments and closing costs. So, even if you think you don’t have enough money saved, you just may be pleasantly surprised. For more information on the mortgage process or to get preapproved, give us a call. Thanks for joining me for this week’s tip. Have a great day.