5 Mortgage Misconceptions

 

At some point, we all will likely need a mortgage, but it doesn’t have to be a potential deal breaker. IF you are organized and have the right expectations, you won’t have a problem. While we are at it, let’s debunk some common mortgage myths.

Only your best credit scores are used in your loan approval

If you happen to be applying for a mortgage with a co-borrower, you would assume the lender would use the higher credit score among you both, but this is not the case. The lender uses the middle of three credit scores (from Equifax, TransUnion, and Experian), and the lowest score between both borrowers middle score. It’s not exactly leaning your way, but you shouldn’t have a problem if you’re responsible.

Your rate is connected to your credit score, so with a lower credit score comes a higher rate. There are exceptions though. Sometimes, if you have the higher credit score, and earn more money, some lenders will use your high credit score. This is usually only for gigantic loans around $415,000.

It’s always worth it to ask your lender if there are any exceptions, but just know that they are rare.

The rate you’re quoted is the rate you will receive

Rate quotes can change unless you have locked the rate in the moment it’s quoted. Rates are affected by the trading of mortgage bonds, so rates change several times a day.

If you are refinancing, you can lock the rate at which it’s quoted, but only if you’ve given the lender ample information and documentation to determine if you qualify for the quoted rate.

When a homebuyer is trying to get a quote, it happens at the beginning of your pre-approval process. The rate lock runs with a borrower and a property, so without a property to buy, you cannot be quoted. Rates will be changing while you’re hunting for your home, so getting updated quotes is something you will want to do.

APR’s are also a part of rate quotes, and it’s a federally required statement explaining what your rate would be if all fees are put into the rate.

Your loan payment will be based on your locked rate, not the APR. That’s just a disclosure to help you understand the fees.

Fixed rate is always better than adjustable rate

After the recession of 2008, borrowers played it safe and likened 30-year fixed rate. This way they knew what their payment would be every month, but the longer the period, the higher the rate. This is when a homeowner must ask themselves how long they plan on owning the home, or how long they want the loan for.

Let’s say your plan is five years. If you choose to get a 5-year adjustable rate mortgage opposed to a 30-year fixed rate, your rate would be considerably lower (depending on the loan size). You are saving in the interest big time!

Real estate agents don’t care which lender you use

It’s law that lenders and real estate agents can’t be making backdoor deals, trading fees for referrals. So as homebuyer, you can choose whoever you want.

This doesn’t mean they can’t suggest which lenders you should use. They will suggest local lenders who are familiar with the local taxes, appraisal methodologies, etc.  They will want to point you to a lender who knows how to handle the familiar processes.

If you are selling, real estate agents will prioritize purchase offers based on healthy loan approvals.

Must have PMI if you put down less than 20%

Mortgage insurance is there to protect the bank, and if you don’t have at least 20% your monthly cost will be a lot higher. It is still possible to not put 20% down and not have any mortgage issues.

This is usually done by having a first and second mortgage, known as a piggyback. When you cap the first mortgage at 80% of the home’s total value, and the second mortgage is for the balance of what you want to finance. 

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