The process of purchasing a home can be overwhelming and lengthy, especially when planning to take a home loan. The current market has multiple reasons that confuse potential home buyers in pursuing homeownership. That is why a detailed understanding of the mortgage process is extremely crucial before buying your home. There are a lot of myths and misconceptions surrounding home loans. This article will attempt to debunk some of the most common home loan myths while illuminating the reality that will empower your home-buying journey.
Here are 7 most common home loan myths:
1. You Need Only 20% Down Payment
Having a 20% down payment is ideal, but most people find it expensive. If you are looking at a mortgage in St. Louis, MO, this is not mandatory in all cases. The advantage of paying a 20% down payment is that it eliminates the process of private mortgage insurance.
However, there are different home loan programs available in the market for people who can’t afford a higher down payment. Many financial institutions provide home loans where you can pay a lower down payment.
VA loans are available for qualified veterans where you don’t have to pay the down payment. First-time home buyers can opt for different loan programs, such as USDA and FHA loans, which require a lower down payment of 3%.
2. Self-employed People are not Eligible for Loan
Self-employed individuals are as qualified for home loans as employed ones. All that is required to qualify for a home loan is adequate solid documentation like bank statements and tax returns to prove your income stability.
There might be some formalities that are a little different for self-employed individuals. Working with an experienced mortgage lender will help you analyze the best home loan options.
3. You Need A Perfect Credit Score
A high credit score might help you get the best interest rates for your home loan. However, a stellar credit score is not a prerequisite for lower interest rates. Many mortgage lenders consider various factors, including employment details, debt-to-income ratio, income, etc.
The average credit score ranges from 300 to 850. The minimum credit score required for a general mortgage loan is 620. You must build your credit score and manage debts effectively to achieve the desired score. Besides, if you are applying for a FHA loan, the minimum credit score you must achieve is only 580.
4. Income Determines the Loan Amount
While the income of the loan borrower is important in determining the loan amount, other factors such as credit scores, employment history, and student loan debt play a crucial role in this aspect. It is better to speak with a mortgage lender to get a detailed idea about the loan amount.
5. All Mortgage Rates Are Same
Mortgage rates are not the same everywhere. Interest rates vary based on certain factors like current market conditions, credit scores, type of loan, etc. Apart from that, fees like closing costs differ between lenders.
6. Renting is Cheaper than Purchasing a Home
A common thought while deciding to purchase a home is that the down payment is prohibitively high. But what about the money that you’ll be spending on monthly rent? Rent prices usually rise every year. On the other hand, your monthly mortgage amount will remain the same until you pay off your loan. From all home loan myths, this is very common.
While paying your mortgage amount, your money is added to your home’s equity. So, from a long-term perspective, purchasing a house is a real-time investment that will remain with you after you clear your loan and thus may end up being the clear winner in comparison to renting one.
7. Being Pre-approved Guarantees a Home Loan
A borrower gets pre-approval when the lender has confirmed the borrower’s income, credit score, and employment history. A pre-approval doesn’t guarantee a home loan. It depends on the fact that the borrower’s employment and income details must not change during the financing process.
During this process, the borrower should not make any drastic financial decisions like taking additional debt, changing employment, or exhausting the savings kept for the down payment.
End Note
Navigating the most common home loan myths. From down payments to credit scores and pre-approval, understanding the reality empowers home buyers. With the guidance of experienced mortgage lenders, misconceptions are cleared, and the path to homeownership becomes clearer. Trust in their expertise to help you secure your dream home and navigate the complexities of the mortgage journey effectively.
