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Mortgage Misconceptions
Mortgage Misconceptions By Hannah Stiff
Before the COVID-19 crisis dominated the news cycle, there was plenty of chatter about mortgage interest rates. They were falling low, low, lower. Those rates, dipping below 3% for certain buyers, enticed homeowners to refi - nance and homebuyers to hand over the money and sign on the dotted line.
These turbulent times undoubtedly impact the housing and lending industries. But there are still good rules of thumb to remember when you’re ready to wade into the home-buying process. And there are myths you need to combat with cold hard facts. Luckily, local lenders are eager to help you make sense of buying a home, especially in these uncertain times. Wood, Branch Manager of The Wood Team at Fairway Independent Mortgage Corp. I spelled out some of the misconceptions heard around town and Wood answered back with the truth about those myths and answers to our burning questions.
At Home: Is getting pre-qualifi ed and preapproved is the same thing?
Colleen Wood: Nope, prequalifi cation is based on just a conversation and a credit pull, nothing is verifi ed. A preapproval has been through underwriting and everything has been verifi ed. Preapproval is based on satisfaction of some conditions, but the difference is, income, assets, credit, liabilities are verifi ed.
AH: Does shopping around hurt my credit score?
CW: There is a 45-day window to “shop” where your credit pulls don’t affect your score if it’s pulled multiple times.
which loan?
CW: We have limited options below 620, but all other conforming products will have options above 620. Rural Development loans require a 640 credit score.
AH: I have student loan and car debt; I can’t afford to buy a home.
CW: Not true. We need to come up with a strategy. There are many.
AH: I don’t have 20% to put down on a house, so I can’t get a loan.
CW: We can do loans with VA and USDA that require nothing down. Buyers must meet certain eligibility to qualify for these programs. It is a huge misconception that you need to put 20% down. We have options with 0%, 3%, 3.5%, 5% on up.
AH: My down payment is the only money I need to bring to the closing table.
AH: To get PMI (private mortgage insurance) off my mortgage, I have to refinance.
CW: Not always. You would want to contact your mortgage servicer to inquire, sometimes they have other options that may include getting an appraisal and if the value of the home is 80% LTV (Loan to Value), they can remove the PMI. Some PMI automatically drops off when the loan reaches 78% LTV. This is all dependent on your loan type and we would be happy to investigate this for you.
AH: All of the interest on my loan is paid out evenly, over the life of the loan.
CW: Fully amortized fixed-rate loans are set up to pay interest heavy to begin with but with each payment, you pay less and less interest and more principal, just like a car loan. The bank makes sure they get paid first. However, your monthly principal and interest total will always stay the same.
AH: Any other myths to dispel?
CW: It’s important to note that not everyone’s mortgage is the same. We offer yearly mortgage checkups for our clients to go over these types of scenarios and to ensure they are where they want/need to be financially. One other myth is that you can only use your First Time Homebuyer Status one time. It can actually be reinstated when you haven’t owned a home for three years.
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