Mortgages can be challenging, especially for first-time homebuyers. It’s vital to distinguish fact from fiction regarding the different myths about how mortgages work. Below are the top three mortgage myths and the facts behind them.
Myth #1: A mortgage and a loan are synonymous terms.
The truth is this–a mortgage is a form of loan, but it is a loan used expressly to buy a house. When you obtain a mortgage, you borrow money from a mortgage lender to cover the cost of the house, and you then gradually recoup the debt with interest. It differs from other loans in that the house is the collateral for the mortgage. In the event that you don’t make loan payments, the lender has the right to sell the house to recover its losses.
Myth #2: Getting a mortgage requires a good credit score.
The reality is that although having high credit can help you receive a mortgage and a lower interest rate, it is not necessary. When considering whether to approve a mortgage application, mortgage lenders consider various factors, including your income, debt-to-income ratio, and employment history. You could still be able to secure a mortgage with less-than-perfect credit, but you might have to pay a higher interest rate.
Myth #3: A sizable down payment is required to buy a home.
Although it can help you get a better interest rate and reduce the amount you need to borrow, the truth is that a down payment is not always necessary. With specific mortgage programs, you may only need to put down 3%, or 3.5%, or even 0%, of the purchase price. However, note that the more you pay, the smaller your monthly payments will be and the less borrowing you will need.
Take Away
Do not let these misconceptions stop you from striving for your dream of owning a home. Before drawing any conclusions, it is best to do your research. Working with a reliable mortgage professional is also sensible. They can help you understand your options, provide accurate and reliable information about mortgages, and advise you on the best course of action in light of your unique situation. You can get the ideal mortgage if you know your options and how mortgages work.
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