Mortgage products are always evolving, and lenders are constantly trying to build a comprehensive portfolio of products to capture as much of the market as possible. Distinguishing between fact and fiction can reveal many loan tools that can ultimately save you time and money. Whether you're purchasing or refinancing, you may be misinformed due to some common mortgage misconceptions. As with any big purchase, be sure to weigh all options to decide which is best for you.
Myth #1 - A 30-year fixed mortgage is the best mortgage option out there.
If you are in your final home or plan to live in your home for a very long time, a 30 year fixed mortgage is the way to go if you can find a low interest rate. Today, the average homeowner will stay in a house for nine years. If you're a first time home buyer, that average goes down to just a few years. If you fall under this category, an adjustable-rate mortgage (ARM) might be better for you. While interest rates on fixed mortgages are fairly low right now, ARM rates may be lower (but not always). There are even interest only options that can give you the lowest possible payment. These introductory rates could last up to 10 years before it is time for them to adjust. It all comes down to your own personal situation and goals. Do the math and analyze each option and decide what fits best for you. None of these are bad options. They just have advantages for different situation. Remember, these products were developed for a reason .Learn more about your loan options.
Myth #2 - You have to save up for a huge down payment before buying a home.
Some people feel that a minimum 10 percent of the purchase price is required for a down payment on a home. Some even go as high as 20 percent. However, there are many lenders out there with loan programs for home buyers that can only afford five percent or less on a down payment. Some lenders will even accept zero down. So, if you're living paycheck to paycheck right now and feel like you're stuck in a vicious bill cycle without an opportunity to save, don't panic. There may be a loan option out there for you.
Myth #3 - If you don't pay 20 percent down, you have to buy mortgage insurance.
This is not necessarily true. Now there's an option out there called piggyback financing or a combo loan that can help you avoid purchasing mortgage insurance. A piggyback loan is a second loan designed to minimize your down payment. Your first mortgage loan covers 80 percent of the purchase price, and, depending on how much you can afford, the second loan can cover up to 20 percent of the remaining costs. There are a couple advantages to taking this route. First of all, it maximizes the amount of house you can afford by decreasing your down payment. Second, it allows you to use the entire tax benefit of your mortgage. The interest on a piggyback loan is tax deductible, while the premiums for mortgage insurance are not.
If you are in your final home or plan to live in your home for a very long time, a 30 year fixed mortgage is the way to go if you can find a low interest rate. Today, the average homeowner will stay in a house for nine years. If you're a first time home buyer, that average goes down to just a few years. If you fall under this category, an adjustable-rate mortgage (ARM) might be better for you. While interest rates on fixed mortgages are fairly low right now, ARM rates may be lower (but not always). There are even interest only options that can give you the lowest possible payment. These introductory rates could last up to 10 years before it is time for them to adjust. It all comes down to your own personal situation and goals. Do the math and analyze each option and decide what fits best for you. None of these are bad options. They just have advantages for different situation. Remember, these products were developed for a reason .Learn more about your loan options.
Myth #2 - You have to save up for a huge down payment before buying a home.
Some people feel that a minimum 10 percent of the purchase price is required for a down payment on a home. Some even go as high as 20 percent. However, there are many lenders out there with loan programs for home buyers that can only afford five percent or less on a down payment. Some lenders will even accept zero down. So, if you're living paycheck to paycheck right now and feel like you're stuck in a vicious bill cycle without an opportunity to save, don't panic. There may be a loan option out there for you.
Myth #3 - If you don't pay 20 percent down, you have to buy mortgage insurance.
This is not necessarily true. Now there's an option out there called piggyback financing or a combo loan that can help you avoid purchasing mortgage insurance. A piggyback loan is a second loan designed to minimize your down payment. Your first mortgage loan covers 80 percent of the purchase price, and, depending on how much you can afford, the second loan can cover up to 20 percent of the remaining costs. There are a couple advantages to taking this route. First of all, it maximizes the amount of house you can afford by decreasing your down payment. Second, it allows you to use the entire tax benefit of your mortgage. The interest on a piggyback loan is tax deductible, while the premiums for mortgage insurance are not.
(NOTE: The new tax bill is working to make mortgage insurance tax-deductible! Check back for more news and updates on this!) There are also lenders that have more affordable mortgage insurance than others. Your situation may call for a much cheaper mortgage insurance premium than your buddies. As always, just look at your options and ask your mortgage advisor for their advice.
Myth #4 - Refinancing your mortgage extends your loan term by another 30 years. Many homeowners are reluctant to refinance for fear of starting over on their payment plan. However, there are ways to get a lower monthly payment and still stay on track to finish at the same time. All you need to do is ask your lender to amortize your payments to a shorter payment schedule. There are also ways to accelerate your amortization if you are unable to lower your term when you refinance for that lower rate or cash out. Learn more about refinancing.
Myth #5 - Bad credit takes away your chances to qualify for a loan.
If you have a damaged credit history, you could still be qualified for a home loan. Things like bankruptcy, repossession or paying bills late can make you a very high-risk loan candidate. The truth is, there are a lot of lenders out there that make it their business to help home buyers with less than perfect credit. Learn more about your credit score at http://www.myfico.com/. If you have damaged credit and want to see what you qualify for, click here!
Myth #6 - You need to pay off your mortgage as quickly as you can.
Usually, homeowners feel like they need to get rid of their monthly mortgage payments as soon as possible. However, the interest rate on your mortgage can be deducted from your federal taxes. This is where the term effective interest rate derives. Your effective rate considers your tax savings. Therefore, it may make more sense to pay off other forms of debt first, such as high-interest credit cards or car loans. It can be a good idea to pay off a mortgage early, if doing so helps you achieve your long-term financial goals and if you have no other debt.
Myth #7 - It doesn't matter where you get your loan, all lenders offer the same products.
This couldn't be further from the truth. Different lenders have different incentives and they might not have your best interests in mind. Most banks and credit unions usually don't have the variety of loan options that a mortgage broker will. Because mortgage brokers carry a wider variety of loan products, you can find a mortgage that best fits your specific financial situation. Remember a mortgage broker works for you, and they don't get paid until your loan closes. So, like you, they have a vested interest in seeing your loan through in the most efficient manner possible. The bottom line? If you have a unique situation or specific goals, seek the advice and services of an experienced mortgage broker. More times than not, they'll have a number of products to help reach homeownership.
Your comments are welcomed!
Myth #4 - Refinancing your mortgage extends your loan term by another 30 years. Many homeowners are reluctant to refinance for fear of starting over on their payment plan. However, there are ways to get a lower monthly payment and still stay on track to finish at the same time. All you need to do is ask your lender to amortize your payments to a shorter payment schedule. There are also ways to accelerate your amortization if you are unable to lower your term when you refinance for that lower rate or cash out. Learn more about refinancing.
Myth #5 - Bad credit takes away your chances to qualify for a loan.
If you have a damaged credit history, you could still be qualified for a home loan. Things like bankruptcy, repossession or paying bills late can make you a very high-risk loan candidate. The truth is, there are a lot of lenders out there that make it their business to help home buyers with less than perfect credit. Learn more about your credit score at http://www.myfico.com/. If you have damaged credit and want to see what you qualify for, click here!
Myth #6 - You need to pay off your mortgage as quickly as you can.
Usually, homeowners feel like they need to get rid of their monthly mortgage payments as soon as possible. However, the interest rate on your mortgage can be deducted from your federal taxes. This is where the term effective interest rate derives. Your effective rate considers your tax savings. Therefore, it may make more sense to pay off other forms of debt first, such as high-interest credit cards or car loans. It can be a good idea to pay off a mortgage early, if doing so helps you achieve your long-term financial goals and if you have no other debt.
Myth #7 - It doesn't matter where you get your loan, all lenders offer the same products.
This couldn't be further from the truth. Different lenders have different incentives and they might not have your best interests in mind. Most banks and credit unions usually don't have the variety of loan options that a mortgage broker will. Because mortgage brokers carry a wider variety of loan products, you can find a mortgage that best fits your specific financial situation. Remember a mortgage broker works for you, and they don't get paid until your loan closes. So, like you, they have a vested interest in seeing your loan through in the most efficient manner possible. The bottom line? If you have a unique situation or specific goals, seek the advice and services of an experienced mortgage broker. More times than not, they'll have a number of products to help reach homeownership.
Your comments are welcomed!
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