Today, the world is stuffed with misinformation.

You’ll be able to thank the Web for that, which has led to an explosion in content material, each good and dangerous.

Social media isn’t a lot assist both, with everybody trying to go viral no matter what they are saying is definitely true.

Let’s put some widespread mortgage myths to mattress as soon as and for all so that you don’t inadvertently miss out on changing into a home-owner.

In any case, property house owners have a tendency to accumulate much more wealth than renters, so why let these falsehoods stand in your means?

You Want Good Credit score to Get a Mortgage

Let’s begin with credit score as a result of it’s a biggie. A number of renters appear to assume you want a 700+ FICO rating to get a house mortgage.

This merely isn’t true, nor wherever near the reality. Certain, a greater credit score rating may help you get a decrease mortgage price, however it’s not essential to qualify.

Actually, you may get an FHA mortgage with a credit score rating as little as 500, and there’s technically no minimal rating for VA loans (although lenders do impose flooring).

In relation to a conforming mortgage backed by Fannie Mae or Freddie Mac (the commonest mortgage kind), you solely want a 620 FICO.

These aren’t significantly excessive credit score scores, or something I’d check with as “good” and even “common credit score.” Eventually look, the common FICO rating was over 700.

Merely put, you may get a mortgage with a low credit score rating. And whereas the mortgage price won’t be favorable, it’s attainable to refinance later when you enhance your scores.

So for those who actually need to turn out to be a home-owner, know that credit score rating perfection isn’t a requirement.

You Want a 20% Down Cost to Purchase a Dwelling

As soon as once more, not true, and nowhere close to it. Whereas the 20% down fee could have been customary on your mother and father, or your mother and father’ mother and father, it’s a lot much less widespread in the present day.

At this time, the common down fee for a house buy is nearer to 10%, however there are nonetheless numerous mortgage applications that enable a lot decrease down funds.

For instance, VA loans and USDA loans require zero down fee, FHA loans require 3.5% down, and the down fee requirement for conforming loans (the commonest mortgage kind) is a mere 3%.

On prime of that, there are proprietary applications and grants from particular person lenders and state housing businesses that will let you put down even much less (see homebuyer help for extra on that).

In different phrases, you don’t want 20% down for any main mortgage kind, apart from possibly a jumbo mortgage with some banks.

Regardless of this, down fee continues to be the main hurdle stopping renters from changing into owners.

Solely Purchase a Dwelling If You Can Afford a 15-12 months Mounted

Right here’s one other mortgage fable I’ve heard uttered on a number of events. That it’s best to solely purchase a home for those who can afford a 15-year mounted.

The logic right here is that you just’re shopping for an excessive amount of home if it’s a must to go together with the usual 30-year mounted mortgage.

However there’s a purpose the 30-year mounted is the primary alternative for residence consumers, and never the 15-year mounted.

It’s merely not possible for many residence consumers today in costly areas of the nation.

And there will be higher makes use of on your cash apart from paying down an excellent low cost mortgage.

Certain, there are loads of benefits to a 15-year mounted, like paying a lot much less curiosity and proudly owning your property in half the time.

However you may by no means make the leap from renter to home-owner for those who dwell by this inflexible made-up rule, thereby hurting your self much more within the course of.

Keep in mind, owners on common acquire much more wealth than renters, whatever the mortgage kind they select.

Dwelling Costs Will Go Down When Curiosity Charges Go Up

At first look, this mortgage fable sounds fairly logical.

If financing prices goes up, residence costs certainly should go down, proper?

Effectively, for starters, not everybody funds a house buy. There are many all-cash residence consumers on the market.

Secondly, the information merely doesn’t help this argument. Previously, a number of dramatic mortgage price will increase have been accompanied by equally massive will increase in property values.

Sure, each residence costs and mortgage charges rose in tandem. Now this isn’t to say they’ll’t transfer in reverse instructions.

However declaring it a foregone conclusion isn’t appropriate, and it’s not one thing you may financial institution on for those who’re ready on the sidelines.

Simply take a look at 2022-2023. Mortgage charges skyrocketed and residential costs continued to rise, albeit a bit extra slowly.

Banks Have the Greatest Mortgage Charges

For some purpose, chunk of parents polled by Zillow felt they might get the perfect mortgage price with their financial institution.

Once more, to blindly assume this is able to be foolish since you may’t actually know until you store round.

Mockingly, I’d enterprise to say that banks are sometimes the costliest possibility, not less than when in comparison with on-line mortgage lenders and mortgage brokers.

Each of these latter choices can usually be less expensive avenues to acquire a house mortgage than a big-name financial institution.

Finally, you is likely to be paying a premium for that model identify, regardless of it offering no extra worth.

Actually, it might simply be a extra bureaucratic course of versus a few of the newer fintech lenders.

If you happen to don’t need to do any of the heavy lifting, simply enlist a mortgage dealer to buy your price with all their companions as a substitute.

That means you get the good thing about comparability buying with out lifting a finger. And evaluate mortgage brokers when you’re at it!

Tip: How are mortgage charges decided?

You Have to Use the Mortgage Lender Who Pre-Permitted You

When you is likely to be instructed this, it’s a lie. Certain, you may really feel some loyalty to the financial institution, lender, or dealer who pre-approved you for a mortgage.

However that doesn’t imply it’s good to use them. It’s completely acceptable to get pre-approved, store round, and take your precise mortgage software elsewhere.

In the event that they don’t have the perfect value, or just don’t really feel like match, transfer on. Thank them for serving to you get pre-approved, however don’t really feel obligated to remain.

And in the event that they attempt to inform you in any other case, then it is likely to be prudent to run away, quick.

Similar goes for an actual property agent who tells you that you need to use their most popular lender. Not true. In the event that they strain you, possibly change them too.

You Have to Wait a 12 months to Refinance Your Mortgage

After getting your mortgage, you is likely to be instructed it’s good to wait X period of time to refinance, resembling a 12 months.

And also you may hear this whether or not it was a house buy mortgage or a refinance mortgage. Actually, you is likely to be urged to not tinker together with your mortgage on the mortgage officer’s behest.

Whereas there will be six-month ready durations for issues like a money out refinance, and ready durations for streamline refinances, many residence loans don’t have a ready interval.

This implies you may probably refinance your mortgage only a month or two after you took out the unique mortgage.

Now it will clearly have to make sense to do that, and the mortgage originator who helped together with your unique mortgage might lose their fee for those who refinance too shortly.

Mortgage officers and mortgage brokers usually have to signal early pay-off (EPO) agreements that end in fee clawback if a mortgage is paid off inside 180 days.

For this reason you’re usually instructed to attend not less than six months after the primary mortgage closes. However for those who received a foul deal, or charges merely received means higher, ready might not be honest to you both.

Solely Refi If the Price Is 1% (or Extra) Decrease

Staying within the refinance realm, some monetary pundits could inform you to solely refinance if X occurs.

A typical one is likely to be to solely refinance if the brand new price is 1% decrease (or extra). However these supposed refinance guidelines of thumb aren’t all they’re cracked as much as be.

Actually, they’re simply blanket guidelines that may’t probably apply to all owners.

All of us have completely different mortgage quantities, varied mortgage charges, funding paths, actual property plans, and so forth.

As such, a single rule simply doesn’t work for everybody. And there are many causes to refinance that don’t have something to do with the mortgage price itself.

This isn’t an invite to serially refinance your mortgage, however take the time to do the maths as a substitute of shopping for into some magical rule.

Adjustable-Price Mortgage Ought to Be Averted

Mortgage myths apply to mortgage sorts too. So ought to ARM be prevented?

Not essentially; they’re simply certainly one of many mortgage applications out there to you. Any mortgage will be good or dangerous relying on the state of affairs.

Even the revered 30-year mounted will be an terrible mortgage alternative and price you cash as a result of it has the best mortgage price.

That being mentioned, adjustable-rate mortgages aren’t for everybody, they usually do include dangers, particularly an adjustment greater.

However they’ll additionally prevent a ton of cash if utilized correctly, with a security web in place for those who don’t promote or refi earlier than the mortgage turns into adjustable.

If you happen to’ve already received a foot out of the door, however refinance charges are rather a lot decrease on ARMs, one might make excellent sense versus costlier fixed-rate choices.

Simply know what you’re entering into. And ensure the low cost justifies the danger.

Mortgages Are Principally Curiosity

Final however not least, certainly one of my favorites. The oft-repeated fable that mortgages are principally curiosity.

However how can that be if the rate of interest is a mere 2-4%? Effectively, it’s nonsense, after all.

Whereas residence loans are front-loaded with curiosity because of how they’re amortized, you don’t pay principally curiosity.

If you happen to maintain a mortgage till maturity, you’ll pay a portion of principal and a portion of curiosity.

The principal (the quantity you borrowed) ought to exceed the full curiosity paid by way of the lifetime of the mortgage.

For instance, for those who took out a 30-year mounted set at 2.75% with a $250,000 mortgage quantity, you’d pay $117,416.00 in curiosity.

That’s lower than half the quantity borrowed from the financial institution on the outset.

After all, rates of interest have elevated fairly a bit recently so it’s now attainable to pay extra curiosity than principal. However that’s the place paying off the mortgage early can come in useful.

One other subject is many owners don’t preserve their mortgages for the complete mortgage time period, so they might wind up paying extra curiosity than principal.

However for those who preserve your low-rate mortgage for 10+ years, you’ll usually discover that the principal paid again surpasses the curiosity. And it’ll occur even sooner on a 15-year mounted.

Regardless, a mortgage is the perfect debt you may have as a result of the rate of interest is so low relative to different choices. And is usually tax deductible in addition.

For that reason, investing your cash elsewhere can usually be a greater transfer than prepaying your mortgage forward of schedule.

(photograph: Michael Coghlan)