A lot of work goes into applying for a mortgage — from rounding up your financial records to making sure your credit score is in tiptop shape. Another important item for your to do list: looking out for misinformation and bad advice.
There are plenty of myths surrounding home loans. Believing them can cost you both time and money. We’ve rounded up some of the more common misconceptions and explained what you really need to know.
Myth #1: Low mortgage rates mean you need to buy a home ASAP
Don’t let mortgage-rate FOMO lead you to make a big financial mistake. Sure, current mortgage rates are very low. (Well-qualified buyers have been able to snag rates around 3% since late 2020.) And, yes, lower rates mean paying less per month or affording a higher-priced home.
However, low rates have also helped push home prices up more than 19% this year. You could end up overpaying for a home just because rates are low, says Aaron Bell, a wealth advisor for Northwestern Mutual. Adding, “just because the interest rates are low it doesn’t mean it’s the right time to buy a home.”
Many experts are forecasting rate increases through the end of this year and into the next, with the average ranging between 3.15% at the end of 2021 and 3.7% by the end of 2022.
While the projected increase may make a home purchase more attractive now, the reality is that mortgage rates have been moving lower for decades. In fact, rates peaked in 1981 averaging 16.63%. Even if you do buy a home at a higher rate, you’ll have the opportunity of refinancing to a lower rate in the future (whereas if you buy at a low rate, the odds of being able to refinance at an even lower rate are smaller).
The decision to purchase a house should also always be based on your goals and how ready you are to take that financial leap, not interest rates alone.
Myth #2: You need perfect credit to get a mortgage
If you’re worried your credit score won’t qualify for a home loan, relax. There are options for borrowers who want a mortgage despite bad credit.
For instance, borrowers with credit scores as low as 500 can qualify for FHA loans. VA loans usually require a score range of 580 to 660, but lenders look at your whole financial picture. USDA loans also have lower score requirements than conventional loans.
Other factors besides your credit score also determine your eligibility for a mortgage, says Rob Heck, vice president of mortgage at online broker Morty. Lenders will also look at your income, how much savings you have accumulated, your debt-to-income ratio and the …….