There are many myths about mortgages that are so widespread that large numbers of people believe them wholeheartedly. Many of these myths are passed on as well-known advice from person to person in attempts to assist friends or family members in making the right mortgage decisions.
While some myths have little effect on the person’s finances, believing in others could cost the homebuyer thousands of dollars in additional costs over the life of the loan. Here is some of the most common mortgage myths that people tend to believe.
Myth 1– A 20% Down Payment Is Required
There is a strong belief out there that you shouldn’t even begin looking for a home if you do not already have a down payment of 20% of the purchase price stashed away. While this may have been true in the past, it isn’t any longer. There is a wide range of different mortgage products available today that require as little at 5% down to obtain the loan. Home loans calculators like the one found at http://www.newcastlepermanent.com.au/ can help you see how different down payment amounts will affect your payments for the term of the loan.
Myth 2 – Higher Incomes Equal Higher Loan Amounts
Another widely held belief is that people that have higher incomes are offered higher loan amounts for their mortgage loans. While this may be true in some cases, it is not true in all cases. There are a number of factors that go into determining the mortgage amount that you will qualify for, including your credit score and the amount of debt that you are carrying.
How you are employed is also part of the calculation, with self-employment counting as a strike against you. Once everything has been taken into account, the mortgage underwriters will decide the loan amount and interest rate that best fits the amount of risk they determine you have of defaulting on the loan.
Myth 3 – Pre-qualification And Pre-approval Are The Same Thing
Many people make the mistake of thinking that pre-qualification and pre-approval are the same things when it relates to mortgages. There is sizable difference between them.
A pre-qualification figure is based solely on your self-reported income and declared debt without a review of your financial records, making it a helpful first step to find out which homes will fit your price range.
Pre-approval is a stringent process aimed at ensuring you would qualify for a loan of a certain amount, requiring a credit check and a thorough review of your financial background.
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