Getting a mortgage can feel like going through a purchase or going through a long, tedious process. It all depends on your understanding of the process. In this article, we’ll help you organize and set your expectations the right way by examining some of the most common mortgage misconceptions.
Let’s start.
Lenders only look for the best credit score
Say you applied for a mortgage with a co-borrower, you’d think that the lender would only consider the highest credit score between the two of you. The lender, however, takes the middle of the three credit scores for the borrower, and then uses the lowest score between the two borrowers’ “middle scores.”
Therefore, if you have a mid score of 780 while your co-borrowers have a mid score of 660, the majority of lenders will only qualify and approve you with a credit score of 660.
Because rates are tied to credit scores, your rates will be based on a 660 credit score, which can increase your rates — or make you ineligible for a loan.
A rare exception is if you have a higher credit score in addition to a higher beneficiary, many lenders will use your higher credit score—but this is usually for giant loans over $417,000.
The quoted rate you provide is the rate you’ll receive
The original rate you quoted is subject to change unless you lock in the rate at the time it was quoted. Rates are based on daily trading of mortgage bonds, so rates change throughout the day for most lenders.
Note that the refinancer can generally lock in the rate when quoted if you have provided the lender with all the required information and documentation to determine whether you qualify for the quoted rate.
Quotations are normally provided when you begin the pre-approval process, but lock rates go with both the borrower and the property. Therefore, unless you see the house you want to buy, you cannot lock in your rates. When shopping at home, rates can even change daily, so you should update your offers when shopping at home.
You should all the time get a fixed rate mortgage and not an adjustable rate mortgage
Many borrowers started opting for 30 year fixed loans after the 2008 financial crisis. This is because the 30 year fixed loan rates and payments can’t be changed. However, longer loan duration means higher rates. Now before opting for a 30 year stay, see how long you’ll keep this house and the loan.
It does not matter what lending agency you use
The real estate agent who will represent you as the customer cares which lender you use. Usually, they will suggest using a local lender who is familiar with the nuances of your area, such as local tax laws, valuation methodologies, and settlement procedures.
This is part of the loan process and can cause delays or a stalled deal if the lender is not experienced enough to process it. The real estate agent who represents the home seller you have an interest in generally prioritizes purchase offers based on the quality of the loan approval. Local leaders respected by agents will make your purchase offer more convincing.
Paying a down payment of less than 20 percent all the time requires mortgage insurance
Mortgage insurance is a lender’s risk premium for home loans when the down payment offered is less than 20 percent. This means a higher total monthly housing cost. However, it is possible to buy a home with less than a 20 percent down payment and avoid mortgage insurance.
You can do this with a combination of first and second mortgages aka piggyback where the first mortgage is capped at 80 percent of the value of the home while the second mortgage is for the balance of what you wish to finance.
Buying the right house in a good community
Let’s say you want to buy a real estate property this fall – which neighborhood are you eyeing? Learning about the misconceptions is just important if you get the right investment in a good environment at the right price.
If you are trying to find your next family home or second property for investment, have a look real estate property in Melton South, Victoria, particularly at Atherstone. Perfectly located just 40km west of Melbourne’s CBD this could be the right investment you have been trying to find. Let me see.
There he’s! Don’t forget to keep researching mortgage rates and news before locking up a property or lender. Good luck!
