For veteran borrowers, the mortgage process can seem relatively simple. But, for borrowers that are new to applying for a mortgage, the process can seem overwhelming. To make matters harder, there is a lot of outdated and false information to navigate through. This can make getting a mortgage seem out of reach to some borrower. Luckily, we’ve gathered 5 mortgage myths and debunked them for you!
Myth #1: Pre-qualified is the same as pre-approved
Reality: The first of our 5 mortgage myths is that pre-qualification and pre-approval are the same. A mortgage pre-qualification is used to determine a potential borrower’s likelihood of receiving a mortgage. A borrower provides the lender information about their employment, income, and debts which is then used to determine if they pre-qualify for a mortgage. The information provided to the lender during a mortgage pre-approval is usually not verified until the borrower applies for a mortgage, so the information a borrower provided could be incorrect or false. A mortgage pre-approval holds more power than a pre-qualification for borrowers. A mortgage pre-approval verifies a borrower’s employment, income, and debt. If a borrower is pre-approved, they are given a maximum loan amount that the lender is willing to loan them based on the information provided.
Myth #2: Your Down Payment is the only upfront cost
Reality: Unfortunately, a down payment isn’t the only upfront cost. There are many other costs and fees that need to be taken into account with the upfront costs of a mortgage. A down payment is a major upfront cost that needs to be accounted for, but there are many other closing costs to consider. Closing costs are a plethora of fees ranging from a mortgage application fee to the home inspection. The closing costs typically account for 1% to 2% of the sale price on the property. So, it’s important to budget for closing costs to make sure you have enough to cover them.
Myth #3: You need a 20% down payment to receive a mortgage
Reality: While having at least a 20% down payment is beneficial to the borrower, it is not necessary. A down payment can be at low as 5% and as high as a borrower wants it to be. Anywhere from 5% to 19.99%, down payment requires borrowers to have mortgage insurance. These borrowers are seen as a “higher risk” since their down payment is lower than 20%. For borrowers that have a down payment of 20% or more, they aren’t required to have mortgage insurance because they are seen as a lower risk. No matter what size down payment a borrower has, there is a mortgage product for them.
Myth #4: Mortgage brokers and lenders are the SAME
Reality: Buyers tend to not realize that mortgage brokers and mortgage lenders are very different from each other. A mortgage lender is the one that lends the borrower money for a mortgage. A mortgage broker is a middleman between a borrower and lender to help find the best product for them. With that, not every lender and broker are the same. Each lender and broker offer a different product to a borrower. They will charge different fees, interest rates, and follow different guidelines. For more information on what a mortgage broker is, check out our previous blog post!
Myth #5: If you’ve been denied a mortgage once, you can never get a mortgage
Reality: None of us like receiving the answer no. Everyone says that the worst someone could reply with is a “no”, but sometimes that can discourage us. Many borrowers think that if they’ve been denied a mortgage once, they won’t be able to receive one in the future. Often, being declined a mortgage discourages borrowers from working to receive one in the future. Talking to a mortgage broker during the first start of the mortgage process can help set a borrower up for success. They will work together to create a financial plan. Whether they receive the mortgage approval right away or work towards getting one in the future, a mortgage broker will help turn that “no” into a “yes”.
When looking to apply for a mortgage, it’s helpful to talk to a mortgage professional. They will help demystify these 5 mortgage myths and more, along with any concerns you have about receiving a mortgage. Here at Clinton Wilkins Mortgage Team, we will help you navigate and understand the mortgage process. You can get in touch with us here!