Mortgage Myths
Overcoming Mortgage Myths
For the average person, obtaining a mortgage home loan can be a tedious and scary process. How's my credit? Do I make enough money? Will I qualify for the amount I need? To make matters worse, there are discouraging myths about getting home loan mortgages that hold many qualified individuals back. Unfortunately, many people have been trained to believe that the only mortgage loans possible are those that traditional banks bestow on "worthy applicants." But great news! Regardless of your individual financial status, there is surely a type of loan you will qualify for. Here are some common myths that you can consider officially debunked:
Myth: If you're self-employed, getting a mortgage home loan is almost impossible.
Reality: This couldn't be further from the truth. Yes, it's difficult for the self employed to get a home loan from a traditional bank (they don't consider the money you make income because it doesn't come in the form of an official paycheck), but a low-doc mortgage loan is the perfect alternative. A low-doc loan requires minimal documentation for approval and lenders do take your full income into account, so you are able to qualify for an amount you deserve.
Myth: People with "bad" credit can't get a mortgage home loan.
Reality: That's such a mortgage myth! On the contrary, most lending firms have loan options specifically for those with bad credit, so it's just a matter of inquiring.
Myth: Interest-only loans are always a bad idea.
Reality: When it comes to mortgage home loans, there is no such thing as a blanketed statement like this. Whether or not a loan is a good or bad idea, totally depends on the applicant. In this case, interest only loans essentially allow you to put off paying off the principle amount and only require you to pay the monthly interest for a fixed amount of time. So, an interest only loan would be perfect for someone who knew they would be making a larger income down the road and would prefer to keep extra money in their pockets now. It would also be perfect for someone who would prefer to put that money into other promising investments that could end up making them more money in the long run.
Myth: No-doc or low doc mortgages mean sky-high interest rates.
Reality: No-doc and low-doc mortgage loans do carry higher interest rates, but they offer advantages that others loans don't. A no-doc loan would be appropriate for someone who simply doesn't want to have to divulge private financial records and doesn't mind paying a higher interest rate in exchange. Likewise, low-doc loans offer unique terms that are "self-employed friendly.? As mentioned above, unlike traditional banks, a low-doc loan acknowledges all of those individuals' earnings as income.
Myth: Home loan terms are never negotiable
Reality: Never say never. Negotiable terms will vary from loan to loan, so it is far from an absolute. Interest only loans, for instance, often allow you to refinance without incurring any penalties. The best thing to do is talk this over with you lender, to see what your options are - now and down the road. Often, home mortgage terms can be tailored to the borrower, so shop around before making your final decision.
As a rule, there isn't such thing as a one-size-fits-all mortgage loan. So, what you really need to think about when searching for a loan is what your specific needs are. Each person's financial state is different and that's why there are many different types of loans. Do a little research, and you will likely find one that makes sense for you.
Myth: A 30-year fixed rate home loan is the best type.
Reality: Not necessarily - this really depends on the borrower. A 30-year fixed home loan will give you more time to pay off the principal amount, but at a higher overall interest rate and monthly payment. However, this higher interest rate (plus the monthly payment) would still be lower than the payment of, say, a 15-year fixed interest loan. The type of loan that is best for you will depend on how much you anticipate being able to pay per month and how quickly you want to pay off the principal.
Myth: My credit is too bad to get a home loan.
Reality: There are actually loans that are meant for people with "bad credit.? You are not out of luck - ask a lender about a bad credit mortgage home loan.
Myth: You need to go down at least 2% for it to be worth your while to refinance.
Reality: No way! When you are dealing with thousands upon thousands of dollars, even a half a percent can make a huge difference when refinancing a loan. Get out a calculator and do the math - you'll see that a little (percentage) goes a long way in monthly payments.
Myth: Paying off your mortgage home loan is a good idea.
Reality: If you are like most Americans, your home mortgage isn't your only debt; you may have credit cards and car payments as well. Paying these off before paying off a home loan makes the most sense for most people. Check with your financial advisor to see if paying off your home loan faster is best for you.
Myth: To even qualify for a home loan mortgage, you must have a big down payment.
Reality: Nope. More so than ever, home buyers are able to purchase a house with minimal down payments if they choose. The only downside is higher interest rates, but you by no means need a huge down payment to establish a reasonable monthly payment.
Myth: You must have rental history to qualify for a home loan.
Reality: In many cases you do, but lenders are often willing to work with a new buyer. Each case is different, and requirements to qualify are always amendable.
Myth: You must have a w2 to qualify for a mortgage home loan. Reality: Low-doc and no-doc loans are made for people who can't provide a W2 for a loan. Especially with a no-doc loan, the documentation required for approval is very minimal, though interest rates are higher in these cases.
Myth: It is less expensive to rent.
Reality: Well, first of all, you need to consider the fact that when you are paying rent, that money isn't going towards anything. When you are paying a monthly mortgage, you are actually putting money into a purchase and that is money you will get back if you ever decide to sell. That said, oftentimes you actually can work out a loan and repayment plan that is comparable to renting. Depending on the property, you could very well be paying the same for a mortgage payment as you would for rent.