2 Common Mortgage Misconceptions
Buying a home is not an easy process and unless you are paying cash, you will require a mortgage, which can increase stress even further. Not only are there numerous banks and lenders to consider, but there is also a variety of different home loan options with each offering their own pros and cons. Unfortunately, many borrowers believe a few common misconceptions regarding mortgages, making the mortgage process a lot more stressful. By learning the truth behind these common misconceptions, you can apply and close on a home mortgage with ease.
Prequalification and Preapproval Are the Same
One of the most common misconceptions borrowers have is that a prequalification is the same as a pre-approval. However, they are actually quite different.
The prequalification process is very casual and simple. A lender will ask for a few basic pieces of information, such as how much money you make. They may also do a light credit inquiry. In most cases, the prequalification will help you and your lender determine how much home you can afford to buy.
A preapproval is much more involved. The lender will conduct a deeper credit evaluation and not only checks, but also verifies your income and assets. A preapproval from your lender ensures you are ready, willing, and able to borrow the money for the home. With a preapproval letter from your lender, you will have the upper hand when it comes to negotiating the purchase of a home.
A Down Payment of 20 Percent Is Required
Another common misconception people have is that they need 20 percent or more to put down on a home. Fortunately, this is not true, since different types of mortgages have different down payment requirements.
Most lenders do require a down payment of at least 3 percent. Today, there are mortgage programs that allow borrowers to secure a loan without any down payment. For example, if you are a veteran, you may qualify for a mortgage without needing a down payment.
It is important to remember that the higher the home cost, the higher your down payment will be. Therefore, if you do not have the money to put down and you do not qualify for a no-down-payment mortgage, you may want to consider purchasing a less expensive home.
Also, the more money you are able to put down, the less you will need to borrow, which equals a lower monthly payment.
Securing a mortgage does not have to be physically, emotionally, and financially draining. Learning the truth behind these common misconceptions will help you through the mortgage process.
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