Finding the right mortgage can seem overwhelming to a first-time home buyer or even a current homeowner who hasn’t gone through the process for many years. When it comes to getting a mortgage, there are misconceptions about the process that may discourage a home buyer. Here are four common mortgage myths and why you shouldn’t worry so much about them.
Myth: Your credit score is too low
Some home buyers think they need to have perfect credit to be able to get a mortgage. That’s not necessarily true. While having a higher credit score will help you get a lower interest rate, there are mortgage options available to those who have a lower credit score.
For example, here are some government-backed loan options.
- FHA Mortgage: This loan is aimed at helping first-time home buyers and requires as little as 3.5% for a down payment.
- VA Mortgage: This loan is the most forgiving, but are strictly for current and former military members. They require zero down payment and no mortgage insurance.
- USDA Home Loan: This loan also requires zero down payment, but eligibility is based on location. Qualifying homes must be in sparsely-populated areas.
Myth: You need 20% for a down payment
You may have heard you need to save up 20% of the home’s value for the down payment, but the truth is you don’t need to put that much down.
This myth comes from the era after the housing crisis between 2007 and 2010, when many lenders tightened their guidelines for a while. But now, there are many options for a lower down payment or even no down payment on a mortgage. When choosing a down payment option, be sure to do your research. The amount of your down payment can affect other things like closing costs, interest rate and your monthly payment.
If saving for a down payment seems daunting, here are some smart ways to save for the down payment of a house.
Myth: Shopping around for a mortgage will hurt my credit score
Each time you submit a mortgage loan application, the lender will run a check on your credit. This is considered a hard inquiry. Too many checks on your credit throughout the year can have an affect on your credit score.
However, if you apply with different lenders within the same 14-day period, it will generally count as just one hard inquiry. This allows you to shop around for the best possible mortgage terms and options during that two-week period.
If you would like to improve your credit before buying a home, here are some smart ways to boost your credit score.
Myth: I don’t make enough money
Lenders will definitely look at how much income you’re bringing in each month, but that’s not all they’ll take into consideration. Lenders also look at other assets you currently have, how much of a down payment you plan to make, other loans you’re currently responsible for, and your credit.
The more you learn about the mortgage process, the less overwhelming it will seem. Check out our free Home Buyers Guide for helpful tips on buying a home. Now through December 31, 2021, you’ll pay no origination fee when you buy a new home or refinance your mortgage with Partner Colorado.*
*Savings on origination fee will vary based on the mortgage loan amount. The promotion applies to primary residence and secondary homes that are located in Colorado only. Certain conditions and restrictions may apply. All applicants must qualify through normal underwriting guidelines, in addition to credit and income qualifications. You must apply for your home loan between 10/1/2021 and 12/31/2021 and fund by 1/15/22 to receive promotional offer.