These days, things change so quickly that it’s hard to keep up. This is especially true in the mortgage industry, where interest rates and the overall mortgage lending landscape are changing at such a speed that it is easy for outdated information to flow, leading buyers and homeowners alike astray.
You may have heard, for example, that anyone can get an all-time high interest rate, that refinancing is a no-brainer, or that mortgage forbearance means you never have to pay off your loan. Sorry, but none of these rumors are true and falling in love with them could cost you dearly.
To help buyers and homeowners separate fact from fiction, we asked experts to highlight some common misconceptions about mortgages today. Whether you’re looking to buy or refinance, here are a few checks you’ll be happy to know.
Myth # 1: Everyone deserves low interest rates
This is great news for borrowers, but here’s the catch: “Not everyone will be entitled to the lowest rates,” explains Danielle Hale, Chief Economist at realtor.com®.
So who can get the best rates? Namely, borrowers with good credit rating, said Hale. Most lenders require a minimum credit score of around 620. Some lenders may require an even higher threshold (we’ll get to that later).
Your credit score is not the only factor that affects the interest rate you get. It also depends on the amount of your down payment, the type of home, the type of loan, and more. So, keep your expectations under control and be sure to shop around to increase the chances of getting a good rate.
Myth # 2: Getting a mortgage today is easy
Many assume that today’s low interest rates mean that getting a mortgage will be a snap. On the contrary, these low rates mean roughly everyone is trying to get a mortgage or refinance the one he has. This glut of applicants, combined with an uncertain economy, means that some lenders may actually tighten loan terms.
In fact, an analysis from realtor.com found that 5-20% of potential borrowers may have difficulty getting a mortgage due to these higher standards. And getting a mortgage could become even more difficult if the recession worsens.
For example, some lenders may also require higher minimum credit scores and larger down payments. In April, JPMorgan Chase started requiring a minimum credit score of 700 and a down payment of 20%.
Jason lee, executive vice president and head of capital markets at Flagstar Bank, says some lenders do not offer loans considered riskier, such as jumbo loans, which exceed the compliant loan limit (for 2020, this maximum is $ 510,400).
“There aren’t that many loan products available,” says Lee.
And even if you do manage to secure a loan, it may take longer than expected.
“Due to low rates and a high volume of refinances, loans take longer to complete from application to closing,” explains Staci Boobsworth, a regional mortgage manager for PNC Bank.
As such, borrowers should ask their lender how long the process will take to complete and make sure they know the expiration date of the interest rate they’ve locked in, because with rates too. low, they could increase.
“Most lenders lock in the customer’s interest rate to protect it from market fluctuations,” Titsworth adds.
Myth # 3: Everyone Should Refinance Their Mortgage
“With mortgage rates approaching record lows, a refinancing can make sense and can help free up monthly cash, ”says Hale.
Always not everyone should refinance. Homeowners should be sure to carefully consider their situation to see if it makes sense to them.
On the one hand, it will depend on your current interest rate. If it’s already low, it might not be worth it, especially since refinancing comes with fees of around 2% to 6% of your loan amount.
Given these upfront costs, refinancing often only makes sense if you plan to stay in your home for a while.
In general, “refinancing is a good idea for homeowners who plan to live in the same home for several years, as they will reap the monthly savings over a longer period of time,” Hale explains.
Myth # 4: You Can Apply For A Mortgage After You Find A Home
Many people assume that you can find your dream home first, so apply for the mortgage. But it’s back, now more than ever. Today your first stop when shopping for a home should be a lender or mortgage broker, who can get you pre-approved for a home loan.
For “a buyer in a competitive market, it is usually essential to have pre-approval before submitting an offer. give the right home, ”Hale says.
Mortgage pre-approval is all the more essential in the era of the coronavirus pandemic. Why? Because many home sellers, reluctant to let anyone visit their home, want to know that a buyer is serious and has the cash and financing to make a firm offer. As such, some real estate agents and sellers require a pre-approval letter before a potential buyer can visit a home in person.
Nonetheless, according to a realtor.com survey conducted in June of more than 2,000 active homebuyers who plan to buy a home in the next 12 months, only 52% obtained a pre-approval letter before starting their purchase. home search, which means that nearly half of home buyers miss this crucial piece of paperwork.
In addition to getting their foot in the door of the homes they want to view, home buyers benefit from pre-approval in other ways. Since pre-approval lets you know exactly how much money a lender will lend you, it also helps you target the right homes within your budget.
After all, as Lee points out, “you don’t want to set your sights on a house and find out you can’t afford it. “
Myth # 5: Forbearance means you don’t have to pay off your loan
Record unemployment caused by the COVID-19 pandemic means millions of Americans are struggling to pay their mortgages. To obtain some relief, many have received mortgage forbearance.
Nearly 8% of mortgages, or 3.8 million homeowners, were forborne as of July 26, according to the Mortgage Bankers Association.
The problem? Many mistakenly assume that mortgage forbearance means you won’t have to pay your loan, period. But forbearance means different things to different homeowners, depending on the terms of the mortgage and the type of arrangement that has been made with the lender.
“Tolerance is not forgiveness,” says Lee. “Rather, it’s a waiting period before you have to make a mortgage payment where your service agent, the company you send your mortgage payments to, will ensure that the negative impacts on your credit report and fees. delay does not occur. However, since forbearance is not forgiveness, you will need to come to some sort of resolution with your loan officer about the missed payments.
Suspended payments can be added at the end of the loan or repaid over time.
“He doesn’t forgive payments, which means the borrower still owes the money,” Hale says. “The details of when payments are due will vary from borrower to borrower.”