4 Mortgage Myths Dispelled for Today’s Homebuyers

Print More

Sponsored by FOCUS Real Estate

Today’s homebuyers are awash in information that can sway what is probably the biggest purchase of their lives. Especially to those new to the home search, it can be difficult to wade through sometimes-conflicting advice on home mortgages, particularly when guidelines that were generally accepted in the past may no longer apply in today’s home-buying environment.

Here are four mortgage myths today’s homebuyers might encounter during their home search.

You need 20 percent down to secure a loan
Following the recent mortgage crisis in the late 2000s, many housing lenders began to require at least a 20 percent down payment from buyers in order to reduce their own loan risk. Twenty percent down is still a good practice, but in expensive markets like Greater Boston, it can be extremely difficult to amass a down payment in the tens or even hundreds of thousands of dollars -- especially for first-time homebuyers who do not have the ability to leverage the proceeds of a previous house sale.

However, there are a number of lending programs that do not require the traditional 20 percent down payment. Per NerdWallet, these include:

  • Federal Housing Administration (FHA) loans, which allow buyers to put down as little as 3.5 percent, in which the U.S. government offers the lender borrower-paid mortgage insurance.
  • VA loans backed by the U.S. Department of Veteran Affairs, which require zero down and do not require mortgage insurance. Active-duty military, veterans and some spouses and widow(er)s can qualify.
  • Down payment assistance programs, typically offered by state and local housing authorities, which can help first-time or otherwise low- to moderate-income homebuyers obtain secondary loans or other funds to make mortgages more attainable.
  • Down payment assistance programs, typically offered by state and local housing authorities, which can help first-time or otherwise low- to moderate-income homebuyers obtain secondary loans or other funds to make mortgages more attainable. For information on some Massachusetts-specific programs, visit the Massachusetts Office of Housing and Economic Development website and the City of Boston’s Neighborhood Development website.
  • Conventional loans, which many lenders do offer to homebuyers who have less than 20 percent down, although the buyers will likely need to pay private mortgage insurance (PMI) until they have established 20 percent equity in their homes, either through making monthly payments or by refinancing if the value of the property increases significantly in the early years following your purchase.

It is worthwhile to remember that sellers faced with multiple bids may favor buyers who expect to put down at least 20 percent, which can raise the chances of the lender approving the loan and the transaction proceeding smoothly.

Focus Real Estate

Randal Engelmann and Erik Gould of Focus Real Estate in Jamaica Plain

You need a perfect credit score
The housing downturn also highlighted more lax lending standards in the preceding years, which allowed many individuals without a strong credit history to buy – and, in some cases, eventually default on – home purchases. As a result, many mortgage underwriters began to narrow their base to buyers boasting credit scores in the mid-700s, or even in the 800s. (A perfect credit score in 850.)

But many lenders have since recognized that these requirements may have been too limiting, because, in the years since, the pendulum has swung back toward the middle. According to Experian, there is no minimum credit score to buy a home, and lenders nowadays will typically engage with potential buyers who have credit scores in the 600s, depending on their individual risk tolerances.

Buyers should, of course, still do what they can to keep their credit scores as sparkling as possible, which may help them obtain more favorable mortgage rates. That includes paying off their outstanding loans each months, not taking out new credit (such as a credit card or auto loan) during the house-buying process, and keeping an eye on their credit score before, and throughout, their home search to monitor for potential fraud or other irregularities.

A mortgage preapproval means you will get the loan
In hyper-competitive real estate markets like Greater Boston, it's practically essential to obtain loan preapproval prior to undertaking your house search in earnest. In multiple-bid situations, sellers will often look to weed out offers that stand a higher chance of failing to obtain financing. A preapproval can give sellers reassurance that the buyers will be good for the funds and the sale will go through.

That being said, buyers must remember that a preapproval does not ultimately equal loan approval. The lender may change its terms, or your own financial circumstances may change during your house search -- maybe you take a different job that pays less than your previous gig, or you elect to take out loans to go back to school. These factors can change your profile in the eyes of a lender. Buyers will likely wish to keep this in mind in bidding for homes, as bidding up to their preapproval amount could backfire if they are unable to obtain a loan up to that amount.

And remember that there is no need to ultimately seek your loan from the lender who granted the preapproval. When the time comes to actually secure your loan, recheck current rates and other conditions to select the lender whose loan products best fit your individual circumstances. Some lenders even offer reduced rates for first-time buyers, so remember to ask.

The traditional 30-year-rate will be your best option
Although mortgage rates have recently edged up, the U.S. is still in a low-interest-rate environment, with the most popular loan category, the 30-year loan, frequently running in the low 4-percent range. However, depending on your borrowing needs, another loan product might be a better fit for your home purchase -- and save you tens of thousands of dollars over the life of the loan.

Take, for example, a $500,000 property, for which the buyer is looking to borrow $400,000. With a 30-year loan at 4.25 percent, the monthly principal-and-interest payment would be $1,967.76. Over the life of the loan making the minimum monthly payments, the buyer would ultimately pay more than $308,000 in interest. With a 15-year loan, the payment soars to $2,810.68; however, over the life of the loan, the buyer would reduce interest payments to about $106,000, or more than $200,000 less than the 30-year option. This calculator on Zillow can help model different scenarios. The bottom line: A shorter-term mortgage may require more discipline month-to-month, but over the years, the payoff is there.

Not able to swing that 15-year payment? Adjustable rate mortgages (ARMs) frequently offer rates somewhere between the 15- and 30-year rates. For a buyer who does not expect to be in the home for longer than the length of the initial loan rate – typically three, five or seven years, ARMs can be a great deal. The caution is that, if you do stay longer than projected, it is likely the readjusted rate will be higher than the historically low rates being offered now.

For a video on the 2017 mortgage environment, watch FOCUS Real Estate's mortgage forecast.

3,733 Views

107 thoughts on “4 Mortgage Myths Dispelled for Today’s Homebuyers

  1. Pingback: Jamaica Plain Real Estate Part I: Agents Discuss Condo Market | Jamaica Plain News

  2. Pingback: Jamaica Plain Real Estate Part III: What’s Going On in the Rental Market? | Jamaica Plain News

  3. Pingback: JP Real Estate Part IV: Real Estate Agents Offer Advice & Feedback from Buyers, Sellers | Jamaica Plain News

  4. Pingback: essays about community service

  5. Pingback: customessaywriterbyz.com

  6. Pingback: phd dissertation

  7. Pingback: help on college essay

  8. Pingback: top essay writing services

  9. Pingback: write my paper apa format

  10. Pingback: research papers writing service

  11. Pingback: phd no thesis

  12. Pingback: thesis writing services

  13. Pingback: cialis professional

  14. Pingback: canadian pharmacy cialis

  15. Pingback: cialis over the counter

  16. Pingback: generic cialis

  17. Pingback: international viagra online

  18. Pingback: order viagra online

  19. Pingback: viagra ingredients

  20. Pingback: active ingredient in viagra

  21. Pingback: pharmacy online shopping

  22. Pingback: 24 hr pharmacy

  23. Pingback: Viagra capsules

  24. Pingback: Astelin

  25. Pingback: canada pharmacies/account

  26. Pingback: viagra

  27. Pingback: generic cialis online

  28. Pingback: cialis picture

  29. Pingback: viagra priapism

  30. Pingback: mexico viagra

  31. Pingback: cialis 40 mg is dangerous

  32. Pingback: revatio 20 mg vs viagra

  33. Pingback: cialis bathtub

  34. Pingback: viagra effects and side effects

  35. Pingback: no prescription

  36. Pingback: which is better cialis or levitra

  37. Pingback: cialis from bc

  38. Pingback: cialis viagra mail order uk discrete billing

  39. Pingback: cialis with dapoxetine

  40. Pingback: buy viagra online for 50 cents a piece

  41. Pingback: amoxicillin for fish safe for humans

  42. Pingback: azithromycin coupon

  43. Pingback: is celebrex a nsaid

  44. Pingback: keflex and blood poisoning

  45. Pingback: define duloxetine

  46. Pingback: what to avoid when taking amoxicillin

  47. Pingback: zithromax vs cipro

  48. Pingback: therapy dose for celebrex

  49. Pingback: cephalexin 250 mg capsule

  50. Pingback: cymbalta caffine pills

  51. Pingback: sildenafil citrate tablets 10 mg

  52. Pingback: precios de cialis en argentina

  53. Pingback: husband on viagra

  54. Pingback: sildenafil 50 mg

  55. Pingback: man on viagra

  56. Pingback: viagra penis

  57. Pingback: order viagra

  58. Pingback: viagra sister

  59. Pingback: female viagra

  60. Pingback: generic tadalafil

  61. Pingback: incest viagra

  62. Pingback: viagra australia

  63. Pingback: brother takes viagra

  64. Pingback: buy levitra online

  65. Pingback: viagra coupon

  66. Pingback: viagra dosage

  67. Pingback: cialis tadalafil

  68. Pingback: sildenafil

  69. Pingback: 5mg cialis

  70. Pingback: viagra meme

  71. Pingback: otc viagra

  72. Pingback: cialis versus viagra

  73. Pingback: essay helper online

  74. Pingback: doctoral thesis defense

  75. Pingback: college admission essay service

  76. Pingback: education dissertation topics

  77. Pingback: thesis for phd

  78. Pingback: professional grad school essay writers

  79. Pingback: can you write my essay

  80. Pingback: dissertations and theses

  81. Pingback: custom essay writing reviews

  82. Pingback: college papers writing service

  83. Pingback: cialis online canada paypal

  84. Pingback: cialis 60mg

  85. Pingback: viagra commercial men

  86. Pingback: cartoons about viagra

  87. Pingback: buy viagra superfoods aruba

  88. Pingback: daily viagra

  89. Pingback: cialis paypal payment canada

  90. Pingback: cialis dose

  91. Pingback: viagra falls lovely

  92. Pingback: purchase cialis online canadian

  93. Pingback: shemale on viagra

  94. Pingback: ingredients in cialis

  95. Pingback: viagra demo

  96. Pingback: where to buy cialis in australia

  97. Pingback: cialis generic dosage australia

  98. Pingback: cialis generico teva

  99. Pingback: prescription drugs online without

  100. Pingback: canadian drug

  101. Pingback: cialis with dapoxetine to buy uk

  102. Pingback: buying tadalafil online

  103. Pingback: riley reid viagra

  104. Pingback: otc version of cialis

  105. Pingback: viagra sex pill australia

  106. Pingback: sildenafil 100mg sale from india

  107. Pingback: buy tablets viagra low cost