With housing prices steadily climbing and mortgage rates beginning to rise, many people are ready to get off the fence about homeownership. Since buying a home remains the single biggest purchase most people will make in a lifetime, it pays to make sure you know what you’re getting into. Here are some home buying myths that can lead to confusion.
MYTH #1: A 30-year fixed mortgage is always the best deal.
30 years is best if you plan to keep the home for a long time. But if you only intend to keep the home for a few years, a short-term fixed rate mortgage could be a better choice. The longer you fix the rate, the higher your interest rate will be, so you could be paying a higher rate for nothing.
MYTH #2: You must have a 20% down payment.
While putting down 20% is ideal, not everyone can realistically afford that. You can get away with a smaller down payment in exchange for paying PMI (private mortgage insurance) until you have enough equity in the home to have it removed—usually 20%. FHA and VA programs require down payments as low as 3.5% and 0% respectively if you and the property qualify.
MYTH #3: You need perfect credit to get a mortgage.
Conventional wisdom says that to get the best mortgage rates, you need to have great credit. Conversely, if your credit is bad, you might not qualify for a loan at all. Is there something in-between? Yes. If you want to become a homeowner before you can repair your credit, there are options. The credit guidelines for an FHA loan are more lenient than for most conventional loans. Your credit score can be lower – and you’ll only be required to pay 3.5 percent down.
MYTH #4: Pre-Qualified is the same as Pre-Approved.
To get pre-qualified, you have to give your lender basic information (assets, income, debts, etc.) so they can determine what kind of loan you can qualify for, and estimate how much you’d be eligible to borrow. But until the lender is ready to give you a loan – after verifying the information you provided – you are not actually pre-approved. You still have to complete a mortgage application after your lender evaluates your financial background and credit rating.