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5 Mortgage Myths Debunked

It’s time to set the record straight. If you’re going through the mortgage process, there’s a chance you’re trusting google with answers to questions like, “How much should I put down on my home?” or “Do I need to hire a home inspector?” But you can’t always trust what the internet has to say, so we called Loan Officer Kenny Fryman in Richmond, VA and his partners to give us the facts on these five common mortgage myths.

MYTH: You need a 20 percent down payment. It can be challenging to save for a down payment, especially if you’re a first-time buyer. Thankfully, there are many financing options for buyers who don’t have a 20 percent down payment. Loan programs, such as FHA, VA and USDA, require little-to-no down payment for buyers who qualify.

“The days of needing 20 percent to buy a house are long gone. In my experience, it’s uncommon to see borrowers consistently have 20 percent. Obviously, if you have the means, it makes sense. But putting down 10 percent, paying the mortgage insurance up-front and keeping some cash to buy house items also makes sense too. By NO means is it a barrier to entry,” says Kenny Fryman.

 

MYTH: Prequalification and preapproval are the same thing. Pre-approval is when a bank or mortgage company commits to lend a potential borrower a fixed amount based on the borrower’s proof of income, proof of assets, credit reports and debt. The lender’s commitment to the borrower remains as long as the borrower still meets the qualification requirements at the time of purchase. Pre-approval does not guarantee a loan until the property has been inspected and the underwriting process is carried out by the lender but is a very strong indication that a borrower will be approved if all the appropriate actions are taken.

A pre-qualification is when a lender informally determines the maximum amount an individual is eligible to borrow. This is not a guarantee of a loan.

“A pre-qualification is a more of a conversation about one’s ability to purchase. It may or may not involve pulling a credit report. It’s an “initial” overview of one’s financial status without verifying their income and assets,” Kenny says. “A pre-approval involves many of the same questions of a pre-qualification; the key difference is verifying the borrower(s) information via pay stubs, tax returns, bank statements & running the loan thru the appropriate automated underwriting system.”

 

MYTH: You don’t need to hire your own home inspector. It’s not mandatory to hire a home inspector before purchasing a home, but neglecting to do so could blindside you to issues in the house that are undetectable to the untrained eye. When you’re touring a home, you’re most likely going to notice that the walls need a fresh coat of paint and that the appliances could use an update. You might not realize that there’s an issue with the electrical wiring throughout the house—one that could start a dangerous fire if left unfixed.

“Please remember that as a purchaser, you are buying a “used” home. There are going to be issues and the seller will not fix all of them. The inspection is a great time for a purchaser to learn about the home and how it operates and budget for the future. A roof may be functioning properly, but may only have a year or two left before it needs to be replaced. If it’s old, but operable then it is not a defect, but a deferred cost,” said Kevin Long, Realtor with Hometown Realty. “I am a Realtor, not a plumber, HVAC technician, roofer, mold specialist, etc. Seasoned agents should be able to point out a few of these things and speak from knowledge and experience, but I always rely on the home inspector for his professional opinion and evaluation.”

 

MYTH: Your credit should be near perfect. Although your credit can’t be down the drain, a few blemishes in your credit won’t prevent you from obtaining a mortgage, especially if you are a first-time buyer. A large down payment can help offset a low credit score. A credit score of 740 or higher typically qualifies for the best rates. It’s typically harder for those with a credit score below 620 to qualify for a mortgage, but it is still possible.

“In a perfect world, everyone would have perfect credit. But in reality, rarely do most people have great credit scores. There’s never been more access to credit & opportunity to buy a house then there are right now. There are mortgages for people with perfect credit, and then on the other side of the spectrum—mortgages for people with damaged or “weak” credit. I firmly believe buying a house is about positioning. The credit score is an important piece to the puzzle, but it’s not the entire puzzle,” says Kenny.

 

MYTH: Adjustable rate mortgages (ARMs) are too risky. Some borrowers steer clear of adjustable rate mortgages because they assume that the adjustable rate is unstable, and could possibly leave them with sky-high interest rates in the future. Although your rates could go up, ARMs typically have a cap on how high interest rates can climb over the life of the loan. And for some people, an ARM can be a great way to obtain a lower interest rate in the short term. Borrowers like military families, for example, could benefit from a short-term low interest rate if they know they will be moving before the higher rates kick in.

“Buying a house is about planning. If you KNOW you are going to sell your house in 3 years, a 5/1 or a 7/1 ARM makes sense. This will help keep your interest rate lower and for all you know (if your plans don’t change) it’s like a 30 year fixed because your rate is locked in for 5 or 7 years. With a rising interest rate market, I think if borrowers aren’t being educated on ARM’s, we’re not doing our job as loan officers,” Kenny says.

 

Kenny Fryman (NMLS #1085540) is a loan officer with Towne First Mortgage (NMLS #1609478) in Richmond. He can be reached at 804-521-8921 or via email at kenny.fryman@townefirstmortgage.com. 

TowneBank Mortgage NMLS# 512138. The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other terms) is subject to change without notice. This is not a commitment to lend.


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