It is generally agreed that when you’re shopping for a new home, the easy part is the shopping. The hard part is the financing. The reams of paperwork and credit questions can leave a person with a bad headache. It helps to know what to expect before you get into the process so it won’t be so intimidating. But if it’s been a while since you purchased a home there may be some things you’re not familiar with, or maybe you’ve just forgotten since your last home purchase. Here are some general misconceptions about home mortgages that were compiled by Alison Paoli on Zillow.com. You should find them helpful as you move forward with your home purchase.
Misconception: Your interest rate reflects the true cost of your mortgage.
Your annual percentage rate (APR) is actually the figure that represents the true cost of your mortgage. It is inclusive of your interest rate, points, mortgage insurance (when applicable) and other fees, including origination and underwriting fees. It does not include the cost of your homeowners insurance policy (or property taxes). The APR is typically higher than your interest rate because it incorporates the rate and the fees. In fact, when shopping for a mortgage, it is best to compare loans based on APR instead of the interest rate because it gives a better sense of the total cost over the life of the loan.
Misconception: Mortgage rates are only released once per day.
Mortgage rates for all types of mortgages can change frequently, sometimes dramatically, throughout the day. Because of the rapid changes in mortgage rates and a lender’s ability to control what is offered, it is important to shop around for the best rates. Getting multiple loan quotes is highly recommended.
Misconception: All lenders are required by law to charge the same fees for appraisals and credit reports.
There are no laws that require lenders to charge the same fees for services such as appraisals or credit reports. In fact, in order to make their loan quotes more competitive, some lenders may waive charges for such services. Conversely, some lenders may charge higher fees for these services, so it’s important to shop around.
Misconception: You must get your mortgage through the same lender you were pre-approved with.
A pre-approval is a conditional agreement that estimates the size of the home loan a lender would fund for you. It typically involves income verification and a credit check. However, you are under no obligation to proceed with the lender that gave you the pre-approval. Make sure you get at least three loan quotes before proceeding with a mortgage.
Misconception: You will almost always get the best mortgage interest rates at the bank where you have a checking account.
While some banks do give their customers discounts, it’s unlikely your bank will offer the best interest rate available simply because you bank there. To get a competitive mortgage rate and terms, get quotes from multiple lenders either in person or online — including your bank — and pick the one that works best for you.
Misconception: When taking out a mortgage with your spouse, lenders will look at each of your credit reports equally when determining the interest rate you qualify for.
When applying jointly for a mortgage, lenders will pull your credit scores from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. They’ll then take the middle score of each set and use the lower of the two to help determine your mortgage interest rate. This means that the least creditworthy borrower will have the greatest effect on your monthly payment. It does not matter who the primary or secondary borrowers are.
Misconception: You cannot get a home loan with less than a 5 percent down payment.
It is a common misconception that you need to put down 10 percent, 15 percent or even 20 percent on a home, especially in light of the recent housing crash. But with as little as 3.5 percent down, you can often obtain a mortgage through the Federal Housing Administration (FHA). FHA loans have become a popular loan option for those who may not have a large down payment or have blemishes in their credit history. FHA loans are available to everyone, not just first-time home buyers. There are also alternative loan programs through other agencies, including the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). These loans also require little-to-no money down.
Misconception: If you go through a short sale or foreclosure, you must wait 7 years before getting another home loan.
In most cases, to buy a home after a short sale, you’ll typically only need to wait 2-4 years depending on your down payment and the loan type you select. The waiting period after a foreclosure is longer: Typically you’ll need to wait 3-7 years before getting another home loan. Even if you can afford to get a mortgage right now, you’ll need to have a good credit score, which can be difficult to rebuild in just a few years. Unique circumstances can lead to different outcomes, so make sure to check with a lender or two.
The good news for this summer and the rest of 2013 is that even though mortgage rates are starting to climb, they are still some of the lowest rates we’ve ever seen. The government’s Quantitative Easing in the money marketplace is allowing people to buy more home for their money than they thought they could. If you want to move up, now is the time to start looking. Call me today at 918-809-5199 and let’s see what’s available in your price range.