Mortgage myths and facts: Busting your home buying blues

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By: Phil Bradford
on 4th Nov,2015

Mortgage loans are tricky. It become trickier because of the myths. So, let’s break this barrier of misconception around them.
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As a home buyer, you’d already know how challenging it is to find out the truth behind every popular misconception our society has. Hence, if you’re battling some of these misgivings, then you may well bust your home-buying blues with some of the most interesting myths and the relevant facts as discussed below.

Myth 1: Principal and Interest Are the Sole Factors Affecting our Monthly Mortgage Payment.

When trying to decide what they can afford, many home buyers base their figures on principal and interest only. However, there are other costs that are included in a monthly mortgage payment. Freeborn says that the majority of monthly mortgage payments consist of four parts — not two.

Besides principal and interest, you could expect both taxes and insurance to be included in your monthly mortgage payment. It’s important to figure in these factors as well, when deciding how much mortgage you can comfortably afford.

Myth 2: Pre-Qualification is at par with Pre-Approval.

Many home buyers think that a pre-qualification is as “good” as a pre-approval. However, this isn’t the case. A pre-qualification is the first step in the mortgage process. With a pre-qualification, the borrower provides information to the lender, and the lender estimates how much the borrower might be able to qualify for.

According to mortgage experts, it is a formal process to undergo pre-approval prior to any mortgage loan origination. This will help in to clarify the income, assets, credit report statuses of the borrowers. Moreover, a pre-approval letter implies complete consent of the lender to fund their home-buying aspirations. As a result, borrowers get more leeway to negotiate for better quotes from the sellers.

However, a pre-approval letter doesn’t allow a borrower to showcase his earnest desire to buy a home. Still, pre-approval letters from the lenders are accepted by many sellers and agents.

Myth 3: High Down Payment is Important to Take Out a Mortgage

Many consumers get discouraged by the idea of having to make a downpayment of 10 or 20 percent in order to obtain a mortgage. However, there are alternatives to avoid paying such a hefty amount.

Luckily, FHA loans require down payment of about 3.5 percent. Beside that, there other programs that can help reduce the down payment requirement further. In this case, a local FHA loan agent or a mortgage expert help borrowers find the most suitable loan program for them through local, state, and federal organizations.

Myth 4: All Mortgages Are The Same.

Not all mortgage loans are the same. That's why it’s important that borrowers understand the components of a mortgage that decides its price. Some of the factors that are considered are points - a kind of fee that are used based on the loan options provided to the borrowers. Here, hidden costs like closing fees and other associated charges should be scrutinized, as they can swell into thousands of dollars.

Therefore, it is always advisable to work with those lenders who can guide their borrowers through the loan origination process well. So, a good fit here would be to work again with the existing lender or the previous one.

Myth 5: Market Research Isn’t Necessary as All Lenders are equal.

Like mortgage loans, not all lenders are the same. This is why it is recommended to ask family members, friends and acquaintances for suggestions as well as references and even go online to fish out unbiased resources. To start with, HUD.gov is a good place.

In the presence of a mortgage banker, borrowers can be confident of his bona fide business practices. There should be a free and frank discussion about mortgage fees, loan documentation costs, attorney charges, etc. and even flag potential traps in the mortgage loan agreement. In short, a mortgage banker should help the borrowers to opt for most suited loan program that corresponds to their financial condition.

Don’t go for any lender, even if it’s the bank where you already own accounts. You can check online for more and better options.

Myth 6: Owning a Home Is Costlier As Compared to Renting One.

It is true that there are certain expenses that come with home ownership, yet it isn’t necessary for that to be always expensive, including the cost of interest as well as taxes. The fact is depending on the location of a house, owing a home could turn out to be a wiser choice. Actually, to a lot of homeowners paying interest and other ancillary costs are actually an investment for the security of their family and loved ones. Add to that, yearly tax deductions that is regarding by them as a boon to their financial kitty.

Myth 7: Mortgage Should be Paid Off Early If Possible.

Lastly, there is a belief that mortgage loan should be repaid as early as possible. While this is true in certain circumstances, however, that option doesn’t always work the best in every case. At this moment, mortgage rates are historically low, so borrowers are keeping the mortgage for an extended term and using the extra money towards some retirement tools like IRA or 401(K). They are doing this to get better returns on their investments.

Even though the above-discussed mortgage myths have been busted, yet there are great possibilities for many borrowers to come across some more. So, it is good to share that with others and let these beneficiaries be thankful for the kind gesture.

Read more: Mortgage Secrets - Lenders don’t like to tell you these truths

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