If you’re thinking about buying a home, you’ve probably been hearing a lot of opinions and advice lately. Although the advice is well intended, it may not always be accurate. The problem is, there are mortgage myths that have been around for generations. Or perhaps you’ve learned about a requirement that was true at one time but is no longer relevant today. So before you get overwhelmed with information, let’s make sure it’s correct and explore the truths behind six widespread misconceptions.
Myth 1: Buyers must have 20% for a down payment
Contrary to this belief, many loan programs require as little as 3% down while some loans offer 100% financing with no down payment. On average, the median down payment is 14%, and for first time buyers the median down payment is 8%.
Myth 2: Private mortgage insurance is a waste of money and should be avoided
PMI is actually beneficial, particularly for first-time buyers. It accelerates the savings process and makes home ownership attainable sooner. For those that are looking to upgrade their homes, PMI expands housing options by leveraging the value of their current home. Also, in many cases PMI can be canceled, once sufficient equity is built in the home.
Myth 3: The more buyers put down, the better the interest rate
While a hefty down payment might lower your rate and enhance loan approval chances, it doesn’t always guarantee lower interest rates. There are many other factors that influence rates, for example, your debt-to-income-ratio.
Myth 4: A low credit score will automatically disqualify potential buyers
While a good credit score is certainly important, it’s not a dealbreaker. For starters, loans take into account your entire financial picture. For example, a buyer with cash reserves and a low debt-to-income ratio may offset a lower credit score. There are also loan programs, such as FHA loans that have more lenient credit score requirements than conventional loans.
Myth 5: Buyers must be low-income in order to qualify for down payment assistance
There’s actually a variety of DPA loans. Some are tailored for first-time buyers or specific regions, while others are open to anyone meeting the requirements. It’s worth discussing with an experienced lender to see if you qualify for any of these programs. They may be able to help keep more of your hard earned money in your pocket.
Myth 6: Student loan debt is a dealbreaker
Student loans don’t have keep you from homeownership, especially if you have a stable income, manage consistent loan repayments, and maintain a debt-to-income ratio under 50%. In fact, making regular payments on your student loan might even raise your credit score over time, improving your odds of mortgage approval.
Now that we’ve debunked these pesky myths, you can approach your home buying experience with more confidence and clarity. As always, it’s best to consult with a mortgage professional to understand your specific situation and options.
About Michigan Mortgage Lender, Julie Krumholz from Superior National Bank
Julie Krumholz from Superior National Bank is no stranger to busting the myths that hold homebuyers back from achieving homeownership. For over 30 years, Julie has helped homebuyers with different financial backgrounds reach their homeownership goals. She’s experienced nearly every facet of the mortgage industry, from processing, closing, loan origination, underwriting, QC auditing, and even co-owning a mortgage brokerage firm. Julie uses her knowledge to match homebuyers with the programs that fit their needs and helps streamline the homebuying process.
