The process of getting a mortgage can be a complex and confusing one, and all the myths around mortgages certainly don’t make the process any easier.
So, the question is, what are some of the most common mortgage myths?
A recent article from realtor.com busted some of the most persistent myths around mortgages and the homebuying process, including:
The lowest rate is always the best choice. Many Buyers think that the mortgage with the lowest rate is automatically the best option. But that is not always true; for example, if a loan has high origination fees or early payoff penalties, it might not be as solid of an option as a mortgage with a slightly higher interest rate—but lower or fewer fees.
Pre-qualification and pre-approval are the same thing. Some Buyers think pre-qualification and pre-approval are essentially interchangeable steps in the mortgage approval process—but that is simply not true. Pre-qualification is essentially having a conversation about mortgage qualifications with a lender. It can be helpful, but it is not enough to start looking at or making offers on properties. A pre-approval, on the other hand, entails sharing all your financial information (like pay stubs, tax returns, and bank statements) with a lender—and it is a must before you start looking at homes.
Adjustable rate mortgages (ARM) are always a risk. The 2008 financial crisis made many Buyers wary of adjustable rate mortgages (ARMs)—often to the point that they won’t even consider one. But ARMs can be a good fit for certain Buyers; for example, if you are planning on moving within 5 years, and an ARM’s rate doesn’t increase before that five-year mark, an adjustable rate mortgage could help you save a significant amount on interest (since initial rates on ARMs are typically extremely competitive).
What does this mean for you? If you are thinking about buying a home, it is important to get yourself pre-approved prior to starting your search. Once you find a house and get an offer accepted, be open to the various mortgages available to you. And, don’t just jump at the lowest rate a lender quotes you, since it may not be the best overall loan for you and your future plans.