4/6/2021
Debunking 6 Mortgage Myths
Not everyone may realize that many of the commonly known “facts” aren’t facts at all! Let’s debunk six of the most common mortgage myths to give you the confidence to proceed.
Myth 1: Pre-qualification and pre-approval are the same thing.
Often times, a pre-qualification occurs before a pre-approval and is much less involved. A lender will look at your overall finances, including debt, income, and assets – but not your credit report or actual ability to pay back a mortgage. You’ll get an estimate of how much you can afford, but it isn’t an exact number.
A pre-approval, on the other hand, is a much more official and accurate statement indicating how much you can really afford. You’ll need to fill out a mortgage application and submit all the documents needed for a thorough financial background check. At this point, you can also receive the exact loan amount you can qualify for, and you may be able to lock in an interest rate.
Myth 2: Income alone determines how much you can borrow.
How much you make in a year is only one factor that determines what loan amount you qualify for when you apply for a mortgage. Other factors include your credit score, how much debt you owe, how much money you’ve saved, and the current interest rate.
Myth 3: Interest rate and APR are the same thing.
Annual percentage rate (APR) and interest rate are different numbers. The interest rate refers to the annual cost of your mortgage, while the APR refers to the annual cost of your mortgage including any fees such as mortgage insurance, closing costs, discount points, and loan origination fees. The APR gives you a much better picture of how much you’re paying, and this number allows you to compare loans more accurately.
Myth 4: Your only upfront cost is the down payment.
Prior to closing, you’ll need to pay several upfront costs – including your down payment. Others include the appraisal fee, home inspection, any application fees, assumption fees, lender fees, mortgage insurance, title insurance, and more. Depending on the loan you get, you may have to pay FHA, VA, or USDA fees. Also, if you are getting a mortgage for a condo, you’ll need to pay any upfront HOA fees. Everyone’s situation is different, so make sure to review all these costs with us!
Myth 5: Applying for a mortgage will hurt your credit score.
When you apply for a mortgage, we will pull your credit score to accurately determine how much you can afford. Don’t worry about this credit inquiry having a significant negative effect on your score. Typically, it’s only a handful of points and major credit bureaus know the reason behind these inquiries matters – especially when it comes to buying a home and shopping for a rate. Most scoring formulas treat these actions as one big pull during a certain time frame.
Myth 6: Student loans prevent you from getting a mortgage.
Many potential borrowers with outstanding student loans may think they’ll need to pay off that debt before taking on a home loan. Not true! Depending on your situation, we can help you choose a mortgage option that will work for you. Student loans alone do not disqualify you from buying a home. What really matters is your debt-to-income ratio, which refers to the percentage of your monthly income that goes toward paying debts. If you only have student loans and no other debts, you can likely still qualify for a mortgage.
If you were skeptical about homebuying because of some of these myths, hopefully now you’re feeling relieved! There are many other misunderstandings about applying for a mortgage and becoming a homeowner, so if you have any doubts or questions about the process, make sure you consult your local home loan experts at Team Montani!