Thanks to the prevalence of the internet, myths, and misconceptions distort the real truth of issues. One of the sectors/ issues affected is mortgages. While seeking to get a loan, this can throw you off and possibly deny you the chance of making a good decision. Surely, you can consult an expert concerning the mortgagee lending process details or make use of reliable sources on the internet or you may use high-tech means and, for instance, figure out what is AI-powered mortgage advisor here, checking the link. Everything is up to you. Though whilst you are thinking over all these matters we are ready to clear up some myths and offer you some truths right now.
Myth: The 20% down payment
There is a misconception going around that one needs to put down at least 20% to qualify for a mortgage. On the ground, this is however, not the case. You can be able to borrow against your property with a single percentage down payment. Some government-backed loans have zero requirements when it comes to down payments.
From our research, it seems the 20% down payment myth emerged from the private mortgage insurance sector.
Myth: If you pass prequalification, you will get approved.
This myth has broken many hearts in the past and will probably do so again in the future. Prequalification and preapproval are two different animals. At the prequalification level, the bank or financial institution will collect financial information from you. To issue a borrower with a prequalification, most lenders will use only self-reported data.
Preapproval is the next step on the ladder to a mortgage. Once they have received the financial information from you, the bank will go a step further to confirm and verify the data you have submitted. Your credit reports will be scrutinized further. Taking into account this information, you can tell that a pre-approval is much more thorough and comprehensive than a prequalification.
Truth: Down payments and closing costs
Most people are usually concerned about how much they have to pay for the down payment. And rightly so. It is reasonable to take considering the payment plan of the mortgage you will receive; the down payment is the largest single lumpsum payment that you will make.
However, there is something that is often forgotten, the closing costs. For the transfer to be processed, these costs must be paid. They include the cost of your appraisal and also your title insurance. From our experience, closing costs vary from around 3% to 6% of the loan balance.
Truth: Don’t and we repeat Don’t get an adjustable-rate mortgage
In the loan industry, there are typically two types of loans. There are fixed and adjustable-rate mortgages. For the fixed mortgages, the lending rate sticks to a fixed rate for the entirety of the loan period. But this is not the case with the adjustable-rate mortgage.
As the name suggests, the lending rate of the latter type fluctuates over the lifetime of the loan. For the first few years of the loan, you might pay a fixed rate lower than the market rate. When the period ends, you will be paying at a rate that depends on the movement of the market. This can be dangerous as it will make the loan very expensive.