Getting a home loan can seem like a difficult task for many home buyers. There is a great deal of confusion surrounding credit scores, down payments, and debt that buyers will come across when shopping for a mortgage. Whether you are pursuing your first home loan, or you have had a mortgage in the past, these 5 simple explanations will help you understand mortgages and get you started on the process with confidence.
Myth 1: Getting Pre-qualified is the Same as Being Pre-approved
You might think that if you are pre-qualified that you are also pre-approved, but with mortgages, that is not the case. Pre-qualification is a quick process done by answering questions about your finances. It’s your step one. The pre-approval process is your second step. Pre-approval will require you to fill out a mortgage application and provide documentation from your financial institution, the last two years of W2s and federal tax returns, and a month of pay stubs. If you’re approved, you’re given a maximum loan amount based on how much the bank is willing to loan you.
Myth 2: Home Buyers Need Exceptional Credit
Don’t let the idea that you need perfect credit stop you from pursuing your dream home. There are many ways to go about getting a loan. Your interest rate for your home loan, however, will be determined by your credit score. Doing everything you can to raise your score is important, but a less-than-perfect score won’t keep you from buying a home. Our preferred mortgage broker, Arch Capital, will be able to answer all your questions, as well as shop around for the best program to suit your individual needs.
Myth 3: Home Buyers Can’t Have Any Debt
Carrying debt will play a part in securing a home loan, but it won’t necessarily prevent you from getting a mortgage. The type and amount of debt you have impact your opportunities, but the most important contributing factor is the amount of debt related to your total income or your debt-to-income ratio (DTI). Your DTI determines whether you can afford to take on another payment and the lower the percentage, the better.
Myth 4: Home Buyers Need to Put a Large Amount of Cash Down
In the past, potential home buyers needed to put as much as 20% down, but in today’s market, that number could be as low as 3 or 3.5% down. It all depends on the loan program you qualified for. The money for your down payment can come from your savings or money from the sale of your current residence or even in the form of “gift money” from your family. Lenders will source your funds to identify where the money came from. Contact your mortgage consultant for further explanation.
Myth 5: Home Buyers will Hurt their Credit by Shopping for Lenders
Most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period—usually 30 days. In these cases, multiple inquiries will be treated as a single inquiry, and this will have little or no impact on your credit score.
However, shopping around for interest rates usually means you’re preparing for a big purchase. To best protect your credit, there are a few things to keep in mind:
Apply for the same type of loan for the same amount. It’s fairly evident on a credit report that when five lenders pull your credit for a $300,000 mortgage loan, you’re not buying five $300,000 homes.
Conduct your business as quickly as possible. While the 30-day grace period is no myth, you might want to treat it as a weeklong grace period. Figure out which lenders you want to check out and do all your applications within a few days.
Do not apply for other forms of credit during this time. Applying for too many loans or lines of credit at once could make you look like a higher risk to creditors.
The whole process of getting a mortgage can seem daunting, but don’t let it keep you from reaching your dream of homeownership. Begin with a free no-obligation consultation with Almont Homes’ preferred lender, Arch Capital. Whether you want to purchase a new home or refinance your existing home, Arch Capital is proud to work with the nation’s top lending resources to provide their customers with the appropriate financing at the best possible terms.