Most of us have grown up dreaming of owning our own home one day. However, many Americans today still believe many misconceptions about mortgages and what is required to purchase a home. To help you on your journey, we have compiled a list of the most common mortgage myths out there, and the truth behind them. After reviewing the list here, you may realize that you’re more prepared than you think.
Mortgage Myth #1 “Renting is always cheaper than buying a home”
One of the first common myths to debunk is the rumor that “renting is always cheaper than buying a home” with a mortgage. Renting may be a good option if you plan to move frequently. It usually requires roughly seven years of home ownership to offset the cost of renting. With that said, if you plan to stay in your home for a longer period of time, buying is typically the better financial choice. Assuming that your home rises in value, you should stand to make a decent profit when you finally decide to sell. Another benefit is not having to worry about any increases on your mortgage as long as you have a fixed rate mortgage. If you are renting you never know when the landlord will approach you for an increase in rent.
Mortgage Myth #2 “You need to have 20% for the down payment”
Many new homeowners will not even look at a mortgage as an option, as they have heard the common mortgage myth that “you need at least 20% of the value of the property for the down payment”, or more.
While 20% is the industry standard, many people are approved for a mortgage loan that requires much less down. Talk to your bank or lender about your situation. Loan programs through the VA, FHA and USDA all have low down payment programs if you qualify.
Mortgage Myth #3 “Once you’re pre-qualified you’re guaranteed the loan”
On the other end of the mortgage myth spectrum, is that many people believe “you are guaranteed the loan once you are prequalified”. Unfortunately, this is simply not true and is an important myth that needs debunking, as it can get you in trouble.
Pre-qualified simply means that it does give you an idea of what loan amount you should expect from your lender. However, pre-qualification usually does not include a credit report analysis, so if you have a shaky credit report you may still be denied the loan.
Mortgage Myth #4 “30-year fixed-rate mortgages are the best option”
A traditional fixed-rate mortgage is what most Americans choose based on their situation and it is what most lenders use as a starting point. However, there are shorter fixed rate mortgages that will have a higher monthly payment, but will save a lot in interest charges. If you believe this common mortgage myth without conducting your own research, then you may lose out on a lot of money and a good deal. This may be a good choice for you if you are looking to not pay as much interest and fees. Look at all of your options.
Mortgage Myth #5 “Mortgages are the same with every lender”
Many prospective home buyers have heard the myth that “mortgages are the same with every lender”. This is also another important mortgage myth that needs debunking, as it may lose you a lot of money in the long run.
All lenders offer a variety of products, interest rates and fees for mortgage loans. Not all lenders are right for every customer, so be careful to choose one that fits your needs. You want a company that you can trust to deliver the mortgage package they promised and provide consistent service. Make sure you ask your agent for advice about lenders as well as friends and family who have had positive experiences.
There are many myths around mortgages, and it is important that these are debunked. These common mortgage myths can result in losing money, getting yourself in a sticky situation, or avoiding a mortgage altogether. If you are considering buying a house, and are new to mortgages, make sure you conduct your research and seek professional advice. Every person’s circumstances are different, and you may be more prepared than you think you are.