Debunking 5 Mortgage Myths

We’ve compiled a list of some of the most popular mortgage-related myths out there and are ready to debunk them for you. A search engine is not the place to get answers to your mortgage questions. That’s what your Birmingham mortgage group, Gagliano Mortgage, is for! Let’s tackle these myths!

Myth #1: You have to have a 20% downpayment

That used to be the preference, but it is becoming less commonplace. Don’t get us wrong, if you have the money available for 20% down, you can go for it. It’s just not required. There are several loan options that require less than 5% down. In fact, most FHA loans only require as little as 3.5% down and VA loans (for qualifying veterans only) usually don’t require any money down at all. Some Conventional loans only require 3% down payment as well.

Beyond that, there are many down payment assistance programs and grants that can help, especially if you are a first-time homebuyer. Contact us at (205) 236-5667 to talk about what programs are available to you!

Myth #2: Your have to have a perfect credit score

Your credit may not be spotless, but that doesn’t mean you can’t buy a home. Thankfully, a few blemishes in your credit won’t prevent you from obtaining a mortgage, especially if you are a first-time buyer. A credit score of 740 or higher typically qualifies for the best rates. It’s typically harder for those with a credit score below 620 to qualify for a mortgage, but it is still possible. Beyond that, there are other mortgage programs available for those with less than perfect credit. And agreeing to make a bigger down payment can help reassure your lender that you are a good risk as well.

It’s important to note that the interest rate that you’ll pay on the loan is also determined by your score, so you’ll likely save money in the long run if you make sure your bad credit is in better shape before you buy.

Myth #3: Adjustable Rate Mortgages (ARM) are too risky

ARMs seem like a gamble and an unwise decision by many who look at it from the surface. Many borrowers assume that the adjustable rate is unstable, and could possibly leave them with sky-high interest rates in the future. Although your rates could go up, ARMs typically have a cap on how high interest rates can climb over the life of the loan. Military families and others who move often could benefit from a short-term low interest rate if they know they will be moving before the higher rates kick in.

If you plan on selling your house in a few short years, an ARM may make sense as your rate could be fixed for the first 5 or 7 years, depending on which ARM option you choose.

Myth #4: You can’t be in debt to buy a house

Many, if not most, of borrowers have other debt, especially student loansand car payments. Yes, debt will impact your ability to buy a home, but what matters is how much debt you’re carrying relative to your total income.

When mortgage companies decide whether or not to approve you for a loan, we look at something called your debt-to-income ratio. Just take the sum total of your recurring monthly debt payments and divide it by your total gross monthly income. If your current debt-to-income ratio is too high to be approved at the moment, you can either work to pay down some of your debts or find ways to generate more income.

Myth #5: The downpayment is your only upfront cost

While the down payment can be the biggest upfront expense for some, it isn’t the only one that you need to take into account. There are also closing costs which usually add up to 2% – 5% of the sale price. These can include attorney fees, home insurance, and other fees. Good news- some closing costs are typically split between the buyer and the seller. And some closing costs can be rolled into your mortgage if necessary.

Did any of these answers surprise you? If you haven’t pursued home ownership because you thought it wasn’t possible for you, we hope this has cleared that up some and we would love to talk with you! When you’re ready to start looking for your new home, contact your Birmingham mortgage group, Gagliano Mortgage! If you have questions about getting a home loan, we are ready to talk with you today.

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