2020 Mortgage Myths
Life in 2020 is a time of confusion, especially for the real estate and mortgage industries. What are the rules this week? Will interest rates continue to fall or are they going up soon? How has the pandemic affected home sales? Should I sell or refinance?
On top of the questions, several myths have been circulating, and it’s time to put them to rest. Here are a few of the most damaging or confusing:
#1 – “Every borrower can get a low interest rate this year.”
No – that’s not true. The factors that affect individual interest rates have not changed. Borrowers with high credit scores, a good down payment, verifiable steady income, etc. will get the best rates, just as they always have.
Other borrowers will likely pay less than they would have when rates were higher across the board, but they won’t see the lowest advertised rates.
In addition, lenders are tightening up their regulations regarding credit scores. Most will not offer a loan to a borrower with less than a 620 score, and some have raised the bar even higher.
That brings us to Myth #2… “It’s easier than ever to get a home mortgage.”
No, it’s more difficult, because most lenders are being more careful than ever. The bank’s have less cash flow than they did last year, simply because approximately 8% of homeowners were granted forbearance in the face of COVID-19. Others went into foreclosure.
Banks want to be assured that the loans they make will result in regular monthly payments coming in. As a precaution, they’re checking employment and assets several times during the loan process. This is in addition to imposing stricter requirements at pre-approval.
This, combined with the fact that lenders are busier because more people are trying to buy or refinance, is slowing the closing process. If you’re buying a home, be sure to ask your lender how long the closing process will take before you write an offer specifying a closing date.
The third myth – “Refinancing is always the smart thing to do.”
It might be – but it might not be. It all depends upon the difference between your current rate and the rate you could get on a new loan, the refinancing cost (generally 2%-6%) and how long you intend to stay in the house.
The cost of refinancing, by the way, just went up for many people. Fannie Mae and Freddie Mac just announced that as of September 1, they’ll be imposing a 0.5% refinancing fee. The lenders can absorb the fee or pass it along to the borrowers.
Before you commit to refinancing, find out how much you would save on each monthly payment. Then look at your good faith estimate to see the cost of your new loan. Divide the cost by the monthly savings to see how many months it will take to recoup the cost of the loan.
For example: If your new loan will cost $4,500 and you’ll save $100 per month, it will take 45 months to break even. If you’re moving in 3 years, don’t refinance!
Myth #4 has been around for a long time… “You should find a house before you apply for a mortgage.”
That’s never been wise, and it’s even less wise today.
In most markets we’re experiencing a shortage of homes for sale. That means home sellers don’t have to wait around to see if you’ll be able to get a loan.
In fact, many agents won’t even show homes to potential buyers who aren’t pre-approved. They know it will be a waste of time because their offers will be passed over for offers from buyers who are pre-approved. In addition, many sellers are worried about the pandemic and don’t want to let buyers into their homes without knowing they have the ability to purchase.
If you want to buy a home in 2020 (or any other year) your first stop should be with a mortgage lender. A bonus benefit of pre-approval is that you’ll know just how much you can pay, so can avoid the heartache of falling in love with a home that’s out of your reach.
Myth #5 deals with the meaning of forbearance. Hint: It does NOT mean forgiveness.
Some people mistakenly believe that getting forbearance means not having to repay the loan. Who knows how that got started. It definitely isn’t true!
Forbearance is nothing more than a “time out” from making payments without negatively impacting your credit rating or incurring late fees. At the time you are granted forbearance, you’ll come to a repayment agreement with your loan servicer.
Those with loans backed by Fannie Mae and Freddie Mac can opt to repay the missed payments at the end of the loan – or when the house is sold or refinanced. In other situations, the borrower will have agreed to make up the missed payments at the end of the forbearance period or over a specified number of months.
When you want true answers to your mortgage loan questions, call us. We at Homewood Mortgage, the Mike Clover Group, will be glad be glad to assist. We’ll also be glad to get you pre-approved before you go shopping, or to show you how much you might save by refinancing.
Call us today at 800-223-7409