Applying for a mortgage is an unavoidable aspect of the home buying process unless you are wealthy enough to buy your dream home in a single down payment. However, there are some common misconceptions and myths about mortgage loans, which keep increasing in number. These misconceptions can cause a lot of confusion for the people planning to purchase an estate or even to those who have already done it. Some of these can even leave the borrowers aggravated as they can risk wasting a huge amount of their hard-earned money.
In order to avoid these circumstances, gaining maximum knowledge about the mortgage loans can serve as myth busters. Having a thorough knowledge can also be quite helpful when applying for the loan, and can improve the applicant’s chances of getting the loan. Here are some of the common myths about mortgage widespread myths that you may not want to ignore.
Myth #1: Paying off the Mortgage early can save money
A mortgage loan is not like any other loan where paying off the debt can save you from recurring increase in interest rates. Once you qualify for a mortgage, term and interest rates are usually fixed for an extended period of time. While the early payments may seem heavy, the percentage value of the payments against your increasing income gets gradually reduces in the long run. By retaining the mortgage for the entire term, borrowers may find it more beneficial to invest the money somewhere else instead of paying off their mortgage and enjoy better returns.
Myth #2: When rejected by one lender, getting a loan from the other can be impossible.
The loan applicants must know that there are a number of lenders in the market and not all of them are the same. As each lender offers a different mix of mortgages, even the rules they follow to evaluate a borrower might differ for each one them. So, if ever you land in a situation where your mortgage application is rejected, you should not lose hope as it doesn’t mean the end of the world. The ideal thing to do in such situation is to approach a professional mortgage consultant or a mortgage services provider and get their advice. These professionals can help you make ideal choices that best fit your needs and financial situation. Also, being recommended by your friends is another way to make a successful bid, while your online reputation is also quite important. This is because lenders usually seek unbiased resources about the applicants.
Myth #3: A huge amount is required for down- payment
Earlier, when borrowers decided to purchase a decent sized home, making a down payment close to 20% of the total amount of the loan was a normal practice. This was, however, in the interest of the borrowers as making a substantial down payment would cut down on the Private Mortgage Insurance (PMI), which would otherwise be levied by the lenders. The addition of PMI would substantially increase the interest rate, costing many thousands more over the life of the loan. However, with the increasing number of people qualifying for the Federal Housing Administration (FHA) loan, they are able to a get a mortgage by making a down payment as little as 3.5%. Hence, if you haven’t saved enough to make a 20% down payment for your dream home, you can still apply for a mortgage.
Myth #4: Prequalification and preapproval are one and the same
While it is advisable to opt for prequalification before applying for a home loan, it simply doesn’t mean that the loan is guaranteed. Your prequalification allows the lender to calculate a ballpark figure you are eligible for so that you can start looking out for estates within a specific budget. Even though your income and credit are evaluated during prequalification, lenders may not scrutinize all your assets and debts thoroughly. So no financial lender can guarantee you this loan amount. On the other hand, if you a borrower get preapproved, the lender would keenly examine all the finances much more precisely, where the amount determined is almost guaranteed. However, the finances and the credit score of the loan applicant would be reevaluated before providing the mortgage, so it’s important to continue maintaining a good credit score.
As a borrower, having the correct information about the mortgage is quite beneficial as it can help you make the right decision at the right time by keeping your financial situation under consideration. As everyone wants to get the best interest rate and loan amount possible, knowing the truth about these misconceptions can always help you avoid any unnecessary confusion that could mess up your home buying experience.
- The misconceptions and myths about mortgage loans can cause a lot of confusion among the loan applicants.
- The misunderstanding about the loan can leave the borrowers aggravated as they stand to risk a huge amount of their hard-earned money.