Mortgage Basics Mortgage Myths Debunked!
There are lots of misconceptions that revolve around the mortgage process. Due to the large variety of mortgage loan options and lenders, it is easy to become overwhelmed. Keep reading to discover the top two, most common mortgage myths, debunked!
Myth #1: 20% Down
One of the most common misconceptions about mortgages, and buying a home in general, is that you need to put 20% down or more to be approved to buy a property. However, the truth of the matter is that there are conventional loans that only require 3% down. What’s more, federal loans are available that can require as little as 0% down! There are a variety of loan options out there that vary in percentage for the amount required to put down.
The origin of the 20% myth comes from a practice called the private mortgage insurance requirement, or PMI for short. The PMI is how private lenders protect themselves against mortgage defaults. In short, if you default on your loan the PMI is how the lender gets compensated. Most lenders will require you to pay PMI on top of your monthly mortgage payments until you reach 20% equity in your home. Once 20% equity is reached, the PMI will be canceled.
Myth #2: Prequalification is Preapproval
Contrary to popular belief, prequalifying for a loan does not mean you have been preapproved. Lenders will use mostly self-reported financial statements to determine prequalification. When you receive preapproval for a loan it means your lender has verified your financial information. Preapproval usually requires the submission of official bank statements or credit card reports, so that the lender can verify this information and give you the best estimate of what a possible mortgage looks like for you. A preapproved quote is a much more accurate representation of a possible mortgage rate than a prequalified quote.
Some lenders use both terms interchangeably, but it is good practice to get preapproved before you start shopping for a home. This ensures you have a solid idea about what your budget will be, and will make finding the right home for you a little easier. Finally, remember that just because you have preapproval does not mean you are guaranteed to close a loan. Once you find the right home and have made an offer, you will still need to bring in someone to appraise the home so you can finalize both your mortgage and the final sale of the home.
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Equity Mortgage was founded in 1986 as a lender to serve all mortgage needs. Our philosophy is to offer a full range of mortgage programs and home improvement loans to meet the diversified lending needs of individuals, commercial concerns, groups, and organizations.
At Equity Mortgage, we work with a variety of clients with varying degrees of mortgage needs. We offer our clients alternative options to their current loan programs with our wide range of mortgage products and flexible lending practices.
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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.