Buying a home is an important decision, both financially and personally. You need to properly manage your finances in order to accommodate a home purchase and devote time to finding the lender that’s right for you.
Because purchasing a home and applying for a mortgage can be so complex, there is a multitude of misunderstandings and myths that many borrowers and buyers fall for. If you fall for these myths, you may wind up with an undesirable mortgage and struggle financially because of it.
Mortgage myths to watch out for:
Myth 1: Mortgage Rates are the Same Everywhere
While it is common to hear that mortgage rates are the same everywhere, this is very misleading. Interest rates depend on a variety of factors, from location, property type, kind of lender, and your personal finances. You may think that your personal bank will offer you the best rates (and they may, as a reward for loyalty), but shopping around and seeking second opinions is an effective way to find the best loan option for you.
Myth 2: 30-Year Mortgages are the Best Option
A 30-year mortgage is one of the most popular loan options for homebuyers. There are other options, however, and, depending on your financial situation, a 30-year mortgage might not be the right choice. A 15-year mortgage, for example, could end up saving you more money in the end as they tend to have lower interest rates.
Myth 3: Once Pre-Approved, You’re All Set!
Pre-approval is an important and exciting step in the mortgage application process, but it is not a guarantee that you will get approval for a mortgage. Your financial situation could change from pre-approval to approval, and your lender reserves the right to check your finances at any time. If you go on a shopping spree or otherwise alter your spending habits, you could change your credit score and debt-to-income ratio, putting yourself at risk for having your pre-approval revoked.
Myth 4: Always Pay-off Your Mortgage as Quickly as Possible
It may make sense to pay off your mortgage as fast as you can, but this may not be the most efficient way to spend your money. Focusing on your mortgage can divert your attention and your money from other important expenses, like student loan payments or utility fees. It may be best for you to pay off your mortgage at a consistent and traditional pace, so as to give yourself the time to plan and manage your finances effectively.
Myth 5: You Need to Put 20% Down
Many people believe that you must put 20% down on your mortgage at closing. This is not only false but also a potentially harmful decision for you financially. Traditionally, a 20% down payment may have yielded the best interest rate, but today you may find that a lower (or higher) down payment works better for you. There are plenty of loan options available with low down payments (1-5%) and even some with no down payment.
Myth 6: A Biweekly Payment Schedule Helps You Pay-off Your Mortgage ASAP
Many lenders tout biweekly payment schedules as an effective way to pay off your mortgage quickly, but this claim is dubious. Upon closer scrutiny, biweekly payment schedules aren’t anything special. Read more about the differences between a biweekly payment schedule and the traditional monthly schedule.
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