Chewing gum takes 7 years to digest if swallowed.
Carrots improve your eyesight.
The Great Wall of China is visible from space. (wait… is it?!)
Most myths are harmless.
Unfortunately, the same can’t be said for most mortgage myths. At best, they’re slightly misleading. And at worst, they lead you down an even more confusing path and you’re no closer of achieving your goal of owning a home.
So let’s debunk a few common mortgage myths once and for all.
Myth 1: You need a perfect credit score to get a mortgage
Okay this is a big myth. If you’re reading this blog post than you most definitely have heard the myth of needing a perfect credit score to get a mortgage, but that’s simply not true.
A good credit score is definitely an important qualifying factor, but it don’t have to be perfect.
Most lenders have programs for people with all sorts of credit scores. While it is true you will get a better interest rate with a higher score, or perhaps put down a larger down payment, a lower score doesn’t automatically disqualify you from getting a home loan.
If you do have a lower than average credit score, consider working with a Mortgage Broker instead of a retail lender or big bank. A mortgage broker will have access to many more loan programs from multiple lenders with more flexible guidelines.
Myth 2: You need to put 20% down payment to buy a house
Many first time homebuyers think they are required to put down 20% or more towards their downpayment.
This myth is definitely not true.
Most first time homebuyers don’t realize that each loan program has unique downpayment guidelines.
Here’s the minimum downpayment requirements for some common loan programs:
- Conventional Loans: 3-5% Down
- FHA Loans: 3.5% Down
- VA Loans: 0% Down
- USDA Loans: 0% Down
Not sure which loan program is right for you? Reach out to us an we’ll help guide you through the process.
Myth 3: The best time to buy is during the spring or summer
Spring and Summer have historically been popular times for buying a house, at least in cold weather states. I mean who wants to go house shopping when it’s snowing out?
This myth is somewhat location based. For example, in warmer climate states such as Arizona, summer can actually be the off-season for home buying, with winter and spring being great buying months. Just remember that purchasing a home during peak season means you’ll be competing with more buyers, generally leading to higher prices.
The best season to buy a home is the season where you feel comfortable buying, meaning you found a home you love at a payment you can afford.
Myth 4: You need to have a large income to qualify for a mortgage
Let us preface this myth first by stating you definitely should have a stable income source and in a position to take on your new mortgage payment and the other costs that come with owning a home.
Lenders will look at income when determining qualifying status, but they also look at many other key factors during the loan approval process, including credit score, debt-to-income ratio, purchase price, and more.
One common option for lower income home buyers is to apply for with a co-borrower who can help bridge the income gap. Your co-borrower can be a spouse, family member, or even a friend. Depending on the situation they can apply as a non-occupying co-borrower.
There are also many down payment assistance programs and other state sponsored resources to help low-income borrowers afford a home.
Myth 5: You have to be debt-free to get a mortgage
How many people do you know that are truly debt free?
Probably not many…
Yes, if you have a large amount of debt and are generally living above your means because of your debt, it may make it challenging to qualify but there is usually creative ways around that!
One of the main factors lenders look at is your debt-to-income(DTI) ratio. And while having a lot of debt can negatively impact your DTI ratio, remember it’s not the only factor that lenders consider.
And remember, not all types of debt are seen the same way by mortgage lenders. Student loan debt is usually looked at differently than credit card debt since it’s seen as an investment in your future earning potential.
Myth 6: You can’t buy a home if you have student loan debt
Speaking of student loans – another common mortgage myth is that you can’t buy a home if you have student loan debt. If that was true, one third of Americans wouldn’t qualify for a mortgage!
Student loans will definitely add to your total DTI, so depending on your income and other debt, in some cases it can make it harder to qualify for a mortgage.
While it’s a general rule of thumb that mortgage lenders require your total DTI ratio (including your new mortgage payment) to be 45 percent or less. However, it’s possible to find lenders with loan programs that will accept a higher DTI. This is another reason to work with a Mortgage Broker who can shop your loan around to the best lenders that match your specific scenario.
Myth 7: A large down payment = a good interest rate
Yes, you will most likely have a better interest rate putting 20% down vs putting 3% down on a conventional mortgage. The difference in interest rates between a large and small down payment is usually very negligible.
The more you put down, the less risk the lender is taking on, plus it shows that you are committed to the investment of homeownership.
Most first time homebuyers don’t have enough savings to put 20% down on a home. And because your rate is made up from many factors like your credit score, DTI ratio, property location, loan term, loan type, etc. your down payment alone will not be the difference between a good rate and a bad rate.
Mortgage Myths Busted?
So now that you know the truth about the most common mortgage myths hopefully your home buying process should be smooth sailing!
Because everyone’s financial situation is drastically different – what works for one person may not work for you. But, the more you can educate yourself on the process by speaking with one of our licensed loan officers, the better decisions you will be able to make!
So good luck, and happy house hunting!
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