Mortgage Myth Busters – 5 Common Mortgage Misunderstandings

Home KeyThinking those dings to your credit will keep you from owning a house? Convinced that you’re stuck with PMI? Don’t fall for these common mortgage myths!

Myth #1: A 30-year fixed rate mortgage is the best option for everyone.

Not so. While 30-year fixed rate mortgages are considered to be the most common choice among American homeowners, they are certainly not the best option for every buyer. Did you know that adjustable rate mortgages (ARMs) constitute a substantial percentage of home loans these days? Even as interest rates on 15-, 20- and 30-year mortgages are exceptionally low, the introductory rates on ARMs can even be lower still. If you don’t plan on living in your home for more than a few years, an ARM could be a better choice for you. Just remember that with an ARM, your interest rate could go up when it’s time to adjust.

Myth #2: You need a large down payment.

Not necessarily. A typical down payment for a home may be close 20%. On a $150,000 home, that’s $30,000. Many people have difficulty saving up that much money, especially first-time buyers. Thankfully, a lot of lenders offer low down payment options like 3.5% down FHA loans or, for qualifying borrowers, no money down VA mortgages and USDA mortgages.

Myth #3: You must pay off your mortgage ASAP!

It’s easy to fall in love with the idea of owning something outright. However, it may not always be realistic or beneficial when it comes to your home. Financial experts generally agree that it makes more sense to focus on paying down your highest interest debt first. This usually applies to credit cards, student loans, etc.

Myth #4: There’s no way to avoid PMI if you don’t have enough money to put down.

Let’s talk about something called a “piggyback loan.” With this type of financing, a homeowner can avoid paying PMI by taking out two loans: the first is for 80% of the purchase price and the second, “piggyback loan” covers the rest, minus the down payment. For instance, an 80-10-10 mortgage has 80% on one loan, 10% on the other and 10% down. Some lenders may also offer 80-15-5 mortgages which would have 80% on one loan, 15% on a second note and a 5% down payment. Some mortgage companies even have 95% financing solutions with no PMI (see American Bank).

Myth #5: You need perfect credit to get a mortgage.

While it’s a great idea to improve your credit before applying for a mortgage, you don’t necessarily need to have a perfect score to qualify. There are lenders out there such as American Financial Resources who will consider buyers with scores as low as 600 (subject to change).

More Helpful Resources:
VA Loan Information
Low Credit Mortgage Information

Tags: , ,

Comments are closed.

Skip to toolbar