6 Mortgage myths debunked
You've been hearing it for ages now - it's a great time to buy a home! Interest rates are still historically low and there is a good selection of homes on the market to choose from. Still, you may be hesitant because of some common myths related to buying your first home. After debunking these myths, you may learn you're better prepared to buy a home than you thought.
Myth #1: You must have a 20% down payment
This is one of the biggest myths about buying a home - and it's not true. Qualified borrowers today can secure home financing through many different programs with minimal down payments - some with no down payment at all. Many first-time home buyers are also surprised to learn that people who currently own homes often put less than 20% down on their next home purchase. While there can be disadvantages to putting less than 20% down, they're likely less serious than you think.
Myth #2: You need a very high credit score
If you have a few credit bumps and bruises but earn a steady income and pay your bills on time, it may still be possible to qualify for a mortgage. To offset potential negative factors on your credit history, you may need to have a larger down payment or meet other qualifications, but you don't need to have a "perfect credit score" to qualify.
Myth #3: Renting is always cheaper than buying a home
Generally, it takes 5 to 7 years of home ownership to offset the cost of renting. If you anticipate moving frequently renting may still be the best option for you. If you plan on staying in your home for a longer period, you will likely save money over time. With home ownership, you also don't have to worry about surprise rent increases. Your monthly payment with a fixed-rate mortgage doesn't change compared to inflation. Assuming your home appreciates in value, this could mean money in the bank when it's time to sell years down the road.
Myth #4: Mortgages are the same at every bank
All banks offer home financing options, but there are significant differences with their products, rates and associated fees for closing the loan. For example: Think's mortgage advisors are not on commission and strive to offer choices that are in your best interest to fit your financial situation. Our closing costs are frequently lower than competitors, which saves you money.
Myth #5: Once you're prequalified, you're guaranteed that amount
Getting prequalified will help you get an idea of what you can afford. It may also communicate to sellers that you've done your financial homework, but it isn't the bank's final approval for your loan. Some first time home buyers get excited, apply for credit and finance large furniture purchases prior to the close of their home. Then they're surprised when they no longer qualify for their loan. Lenders will take a deeper dive on your credit prior to the closing of your home to verify no significant changes have impacted your ability to repay your mortgage. So it's best to be mindful of spending during this time.
Myth #6: You should always pay off your mortgage as soon as possible
It seems like common sense to pay off your mortgage as soon as possible, but the reality is it may not be the best use of your money in the long run. With today's low mortgage rates, the interest you could earn on investments may potentially be higher than the interest you pay on your mortgage over time. The interest paid on your mortgage is also tax deductible. Everyone's situation is different - putting extra money into investments instead of paying down a mortgage isn't automatically the best option. However, it's worth considering and an advisor can help you determine the best route to take.
We can help
If you are a first-time buyer, we can help walk you through the home buying process in simple, easy-to-understand language. There are several options available for you and not every type of loan is right for every person. Let us know what you need, and we'll help you find the option that best suits your needs. Visit one of our branches or call 1-800-288-3425.