6 Mortgage Myths Exposed

So, you’re ready to find your next home. Beyond the endless online searching, open houses and must-have checklists, you’ll probably need a home loan. Before you set out on your quest for a property with the perfect outdoor patio, read on as Mountain America Credit Union dispels a few of the common myths when it comes to the mortgage process:
 

1. Perfect credit is required. While a higher score can help you get a lower rate, it’s not the only factor a lender considers in your overall financial situation. If you demonstrate that you have the ability to make the payment, you will likely qualify for a mortgage loan with a credit score above 670.
    

2. Rising interest rates mean homeownership is out of reach. Rising interest rates can affect how much you qualify for and the kind of loan that is best for you, but this doesn’t mean you can’t get a house. According to projections from CoreLogic, an interest rate increase of 0.85 percentage points could increase monthly payments by $100 between November 2017 to 2018. While this does seem drastic, it doesn’t compare to the all-time highs of the early 1980s when a long-term fixed mortgage rate was at 18%.
    

3. A 20% down payment is necessary. A conventional mortgage will require this higher down payment while helping you avoid PMI (private mortgage insurance). But, there are other options available. An FHA loan only requires 3.5% down. VA loans and first-time homebuyer loans can come with financing up to 100% loan-to-value. Mountain America Credit Union has a first-time homebuyer loan with as little as $1,000 down and 100% loan-to-value financing on approved credit.
    

4. Prequalification means you have a loan. Mortgage prequalification determines your maximum loan amount by taking into account your income and liabilities. This step, however, is not a binding loan agreement. Your lender will gather additional documentation before you are fully approved.
   
    

5. A long-term mortgage is the best term option. While a recent article from FreddieMac touts the long-term mortgage as the most popular, it’s not the only option. A short-term mortgage can save a lot in interest payments. Another option is an adjustable-rate mortgage, which starts out with a fixed rate and then changes at set intervals based on the market, meaning your monthly payment can fluctuate after the initial term.
    

6. Compare mortgages based on their advertised rates. Instead, compare the APR (annual percentage rate), which lenders must advertise alongside mortgage interest rates. The APR will include estimated fees and other charges, giving you a more accurate picture.
    

There are numerous decisions to make between prequalification and closing. As with any big purchase, it’s important to meet with various lenders, like Mountain America, to talk through your options. Their answers will determine the right mortgage loan for you.