Home is the single biggest purchase one makes in his/her life. Since greater is at stake, the greater is the scepticism. No wonder, the subject of mortgage has become vulnerable to presumptions and speculations whether it’s about finding it, qualifying for it or paying it back. Such misconceptions can stop you from making a right choice. Let us help you dispel your doubts.
1. Poor credit scorers cannot get mortgage
This is so not true! There are many programs out there to help people with low credit scores get a decent mortgage amount. Lenders empathize with applicants. They recognize the financial stages an individual passes through and are willing to lend out a decent sum at an optimum mortgage rate. Even if you do not qualify for prime mortgages, there are subprime mortgages to come to your rescue. Subprime mortgages are lent out to those applicants who have a lower-than-average credit score. The only catch to it is that it comes at a higher upfront fee and interest rate.
2. Self-employed individuals do not qualify for a mortgage
This belief has some element of truth in it. Though it’s not downright impossible, it definitely becomes tougher for self-employed applicants to qualify for a mortgage. Here’s why. Post economic crisis (2007), the practice of accepting self-certification of the income declined. Lenders became wary of giving out stated income loans and the self-employed were asked to present a substantial income proof. Obviously, it became frustrating for those who had decent savings for repayment but still wouldn’t qualify for the loan just because they haven’t had a proof of standard bracketed income.
The applicants were also asked to show their tax returns for the previous years. It was not a big deal for those who paid their taxes religiously but for those who didn’t, it became the pain point in getting a mortgage.
But there are more-than-one ways to get your application approved even if you don’t have an income proof. All you need to do is show them the proof of your contractual work in the past, present and the future. The point is to convince the lender that as a self-employed individual, you are willing (reflected in your credit score) and able (reflected in your income) to make the timely repayment of the loan.
3. 20% is the lowest down payment for getting a mortgage
Well, not exactly. The fact is, there is no fixed minimum down payment set for mortgage. The minimum value varies from applicant to applicant depending on many factors like income, credit score, loan amount, value of the property and so forth.
The 20% down payment question seems to especially bother those who cannot or do not want to ask their parents for a down payment. Well, if you can’t afford to shell out 20% down payment, you need not worry. There are many lenders out there who are more than happy to offer you a deal with a lower down payment. Even Bank of America reduced its minimum down payment from 20% to 15% last year. Down payment can be lowered by paying PMI (private mortgage insurance).
There are many government loan programs that offer far viable down payment option. FHA loans are given at 3.5% down payment. It is for those who do not qualify for private mortgage insurance. VA loans are given at 0% down payment. It is for those who are eligible veterans.
4. My bank is the place to get the best mortgage rate
If you think that your bank is the best mortgage lender for you, you might be mistaken. On the contrary, your bank perceives you as a more profitable prospect. The reason is simple enough, being a loyal customer; you are more likely to stick to your own bank for mortgage rather than shopping around for better deals. To get the best deal, you need to make a thorough comparison between different mortgage lenders out there. The comparison can be made in terms of interest rates, deposit amounts, closing charges and so forth. And whichever lender you choose, never forget to negotiate.
As a smart borrower, you need to steer clear of the above misconceptions. Following these handy tips will help you choose a deal that fulfils your mortgage needs, the best way.