From the list of terms to the array of loan choices, the mortgage process can seem overwhelming and complicated. It also doesn't help that there are a lot of misconceptions about mortgages. Here are four of the most common ones:
- You need perfect credit to apply for a mortgage. Having excellent credit can certainly make qualifying easier and help you get the best rate, but it's not a requirement. With most types of mortgages, you only need to have a credit score of at least 620.
- Always choose a fixed-rate mortgage. Fixed-rate mortgages offer many benefits, including the predictability and peace of mind that your interest rate and payment won't rise. But depending on your situation, an adjustable-rate mortgage (ARM) may be a good choice for you. With an ARM, your mortgage interest rate starts low and increases over time. ARMs are also ideal if you plan to live in your home for only a few years.
- You need to put 20% down. This is one of the most common misconceptions primarily because a 20% down payment is required to avoid having to pay private mortgage insurance (PMI). But for the actual down payment required to purchase a home, you may be able to put as little as 3% down with many mortgages. Keep in mind that the less you put down, the higher your monthly payment will be.
- All mortgage lenders are the same. Thanks to the Internet, you have more lender choices than ever before. But, some are better than others. A good lender will help guide you through the process and help you choose the mortgage that's in your best interest. Before you select a lender, do some research or ask your friends, co-workers, or your Realtor for recommendations.
Though there are many myths about mortgages, the fact is, you can make the process easier by doing your homework even before you apply.