Are you thinking about getting prequalified for a mortgage, but worried that a lender will turn you down? Are you considering buying a home or refinancing, but looking at interest rates with a wary eye? Mortgage myths are pretty common and can keep perfectly eligible people from even considering buying a home. Even if you don’t think you’re the perfect buyer, don’t let these common myths keep you from looking at houses and applying for a mortgage.
Myth 1: You need a big down payment
While a 20 percent down payment is standard, it’s not a requirement to get a mortgage these days. A number of loan programs exist that let you put down less than 20 percent — in some cases, as little as 3.5 percent. A loan guaranteed by the Federal Housing Administration (FHA) is just one example of a mortgage that accepts a lower down payment. First time homebuyer loans also usually take lower down payment amounts.
Myth 2: You need perfect credit
Another one of the more persistent mortgage myths is the belief that you need to have stellar credit to get a loan. While having excellent credit does mean you’ll get a lower interest rate, it isn’t an absolute must. Some loan programs, including the FHA loan program, will extend mortgages to people who don’t have the best credit. Even if your credit isn’t where you’d like it to be, you might still want to see what your mortgage options are.
Myth 3: A fixed rate is always best
Mortgages that offer a fixed interest rate offer a bit of stability: you’ll pay the same rate in 15 years that you’re paying now. While that can be appealing to some, it’s not always the best option. If interest rates are low when you take out the mortgage, but you plan on selling or moving in just a few years, it can make more sense to get an adjustable-rate mortgage. If interest rates are high and you expect them to drop in a few years, getting an adjustable rate can also make sense.
Myth 4: A low interest rate is always best
While the interest rate does affect what you’ll pay over time, it’s not the only thing to think about when getting a mortgage. A 15-year loan often has a lower rate than a 30-year one, but you’ll need to make higher monthly payments with the 15-year mortgage, which might be beyond your budget. Along with the interest rate, you also want to find out any fees charged by the lender. If the fees are very high, the mortgage with the lower rate might end up costing more than a low-fee mortgage with a higher rate.
If you want to buy your first home, it’s important to speak to a lender before you start looking. A lender can prequalify you for a loan and let you see what mortgage options are available to you.
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