If you’ve only learned about mortgage loans from television or financial newsletters, or if you’ve only discussed the possibilities with your local banking institution, you probably don’t know all you need to know before choosing a lender and a mortgage loan.
The first mistake is in looking for a home before you talk seriously with a lender. By seriously, I mean you need to get pre-approved. That means providing your financial details and documentation and allowing the lender to check your credit. Far too many people confuse “Pre-qualification” with “Pre-approval,” and come in for a sad awakening when they learn that the pre-qualification didn’t mean a thing.
Rule #1 then, is knowing your limits, so you don’t fall in love with a house that is beyond your reach. Once you’ve seen a house you can’t afford, the ones you can purchase will all look inferior.
Here are a few more mortgage myths you should ignore:
“Today’s loans require a 20% down payment.” No, they don’t. However, loans for more than 80% loan to value ratios do require private mortgage insurance, which is an extra monthly fee. On average, it will add about $1,000 per year to your payments for every $100,000 you’ve borrowed.
It’s true that lending standards tightened up considerably following the mortgage meltdown, but today there are programs that will allow you to buy with a smaller down payment.
VA loans offer zero down (although either you or the seller must pay closing costs) and FHA loans can be obtained for as little as 3.5% down, as long as the borrower has at least a credit score of 580.
Borrowers with scores of 500-579 are required to pay 10% down.
“Only people with perfect credit can get a mortgage loan today.” Again, not true. As noted above, your scores can be as low as 500, although you will need a larger down payment and will pay a higher interest rate.
“You should always choose the loan with the lowest interest rate.” No, not at all. Different lenders and different loan programs, including the 1 hour loan one – all come with different fees. You should examine all of the terms of the loan – not simply the rate. Talk with two or three lenders, and ask for a complete breakdown of the costs for any loan they recommend. Then do the math and make comparisons. Different lenders also offer different levels of service. Do choose a lender who will be available beyond the hours of 9 to 5 – just in case you find your dream home and need your pre-approval letter immediately.
“Adjustable rate mortgages are only for gamblers.” Not necessarily. It all depends upon your future plans and the terms of the loan.
An adjustable rate mortgage starts out with a low, low rate of interest. Then after a set period of time – usually 5 years – the rate begins to increase in increments until it reaches its cap. The cap is the highest interest rate that the loan can have, even after all rate adjustments.
Meanwhile, you’re either paying smaller payments or gaining more equity each month than you would with a higher rate.
If you plan to move within 5 years, then you’re a good candidate for an ARM. However, as we saw during the mortgage crisis, things can change. You might decide not to move, and the price of homes could take another nose dive, making it impossible to sell for the balance owed.
With that in mind, don’t agree to an Adjustable Rate Mortgage without knowing the interest cap on that loan. As long as your income is sufficient to make the payments based on that rate, you’ll be fine, and will have saved thousands of dollars in interest.
When you’re ready, we at Homewood Mortgage, the Mike Clover Group, will be happy to talk with you and show you the loan programs available to you. We’ll also be happy to get you pre-approved, so you can shop for your new home with confidence.
You can reach us at 469.621.8484 or you can apply on line at www.mikeclover.com.
18170 Dallas Parkway
Dallas, TX 75287