Deciding to buy a house and take on a mortgage is likely the largest financial decision you will ever make. To be successful, we recommend you find a loan officer that you trust, to help you understand not just what you qualify for, but most importantly, what you can afford. They should be able to guide you through what to expect throughout the process. Finally, they should be able to unravel some of the mortgage myths floating around on the internet.
Below are some of those common myths.
1. You need 20% down to buy a home
While 20% was once required on many conventional loans, that is not the case today. You can put down as little as 3% on a conventional loan as a first-time homebuyer and 3.5% down on an FHA loan. If you are a veteran, you can do a loan with nothing down.
2. Prequalification is the same as pre-approval
While these two terms are often confused as having the same definition, they are very different. A pre-qualification is typically no more than a conversation between a loan officer and borrower about the potential lending power they hypothetically could be offered without proof of credit, income, or down payment. On the other hand, a pre-approval would require a potential borrower to provide documentation so that credit, income, and down payment could be verified. A pre-approval is what is needed to make offers on homes.
3. Your down payment will cover your closing costs
The down payment is a percentage of your purchase price. However, that dollar amount does not include your closing costs. While closing costs will vary wildly based on what you are buying, where you are buying, and how your agent writes up your offer, you should assume these costs can add up to an additional 1% – 3%.
4. You must have perfect credit to qualify for a mortgage
While credit is a major factor in getting approved for a home loan, perfect credit is not required. Many programs specialize in individuals that have blemishes on their credit. For example, if you have a lower credit score and looking to buy your first home, you may want to consider an FHA loan.
5. Applying for a mortgage will hurt your credit
Saving a hard inquiry on your credit can drop your score by a few points if you have several other credit reports pulled within a short time frame. However, this will only be a small hit to your credit score and will only last a short time.
Have questions about your mortgage? Feel free to reach out to the o2 Mortgage team at 408-610-3210.
“Professionalism is the best word to describe the team at o2 Mortgage. From start to finish the advice they offer coupled with exceptional service is hard to beat. You can’t go wrong with o2 Mortgage!” -Bass A., Yelp