by Maurie Backman | Jan. 27, 2021
Looking to purchase a home? Don't buy into these misconceptions.
Mortgage rates are currently sitting at historic lows, so it's a great time to apply for a home loan. But if you're misinformed about mortgages, you could end up paying more for your loan or losing out on money-saving opportunities. Here are a few mortgage-related myths you shouldn't buy into.
You might assume that mortgage rates are universal, so it doesn't matter which lender you use for your home loan. But actually, rates can vary from lender to lender, so it always pays to shop around for different offers when applying for a mortgage. You may find that based on your personal circumstances -- your credit score, debt-to-income ratio, and salary -- that you qualify for a much more favorable rate with one lender than another.
You may have heard that when you sign a mortgage, you're required to pay closing costs on that loan. But like mortgage interest rates, closing costs aren't universally the same. Rather, they're set by lenders on an individual basis, so while one might charge fees that equal to 2% of your loan amount, another's fees might be 4% of your loan. When shopping around for offers, be sure to ask specifically about closing costs. You can also try negotiating with lenders to see if they'll come down on those fees.
You'll generally need a minimum credit score of 620 to qualify for a conventional mortgage. But that doesn't mean you have no options if your credit score is lower. FHA loans, for example, are open to borrowers with a credit score of at least 580. And if you're eligible for a VA loan because you're a current or former member of the U.S. military (or the surviving spouse of one), you may be able to get approved with a lower credit score, too. Now, this isn't to say that you shouldn't try to boost your credit score before applying for a mortgage, because that will open up more options for you. But you should be aware that you can, in fact, get a mortgage even when your credit is less than stellar.
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Mortgage lenders need reassurance that you'll be able to keep up with your monthly payments, so having a steady source of income is usually a requirement. As such, you might assume that if you're self-employed with a variable income, you won't qualify for a home loan. But that's not true. While you will generally need to take extra steps to prove that you're capable of covering your mortgage, you don't need to earn the same amount each month to get approved. Your lender will tell you what specific documentation you'll need to qualify for a mortgage as a self-employed borrower, but at a minimum, prepare to offer up two years of tax returns and profit and loss statements.
Buying into misinformation can make getting a mortgage more difficult and expensive for you, so don't let that happen. Instead, keep learning about the process so you know what to expect, what pitfalls to avoid, and what you can do to make yourself the strongest mortgage candidate possible.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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