In today’s rapidly changing mortgage landscape, it’s easy for myths to circulate. So, here’s the truth behind common mortgage mistruths you may hear today.
1. Everyone qualifies for low-interest rates
There’s a lot of talk about record-low mortgage interest rates of late. Most recently, a 30-year fixed-rate mortgage dropped to 2.88 percent for the week of Aug. 6, according to Freddie Mac. While this is great news for borrowers, not everyone will qualify for the lowest rates.
So, who can expect to get the best rates? Borrowers with a good credit score, with most lenders seeking a minimum score of about 620 and some requiring an even higher threshold. Other factors affecting the interest rate you get depends on the size of your down payment, type of home, type of loan, and much more.
2. Getting a mortgage today is easy
Many folks assume that getting a mortgage will be easy with today’s low-interest rates, but these low rates mean that just about everyone is attempting to get a mortgage or refinance the one they already have. This onslaught of applicants, combined with the uncertain economy, means some lenders might actually tighten loan requirements.
In fact, a realtor.com analysis found that 5 percent to 20 percent of potential borrowers may struggle to get a mortgage because of these stricter standards. And getting a mortgage could become even more difficult if the economy worsens.
For instance, some lenders also might require higher minimum credit scores and larger down payments. Some lenders also aren’t offering riskier jumbo loans, which exceed the conforming loan limit (for 2020, that max is $510,400). And even if you do get a loan, it may take longer than you expect due to the low rates and high volume of refinances.
That’s why borrowers should ask their lender how long the process will take to close and make sure they’re aware of the expiration date on the interest rate they’ve locked in—since, with rates this low, they could go increase.
3. Everyone should refinance their mortgage
With mortgage rates at near-record lows, a refinance can make sense and help free up monthly cash flow. It’s not a good idea for everyone to refinance, however. Homeowners should take a good look at their situation to see whether it makes sense for them. For one, it will depend on your current interest rate.
If it’s low already, it may not be worth the trouble—particularly since refinancing comes with fees amounting to about 2 percent to 6 percent of your loan amount. Given these upfront costs, refinancing often makes sense only if you plan to remain in your house for a while. In general, refinancing is perfect for homeowners who plan to live in the same home for several years, because they will reap the monthly savings over a longer time period.
4. You can apply for a mortgage after you find a home
Although many people think they can find their dream home first and then apply for a mortgage, that’s backward (now more than ever). Your first order of business when shopping for a house is to get pre-approved for a home loan by your lender or broker.
In a competitive market, it’s typically essential to have pre-approval done before submitting an offer. So, getting it done in advance is a smart move that will enable a buyer to make an offer on the right home quickly.
Mortgage pre-approval even more essential in the coronavirus era, because many sellers (uneasy about letting just anyone tour their home) want to know a buyer is serious and has the cash and financing to make a firm offer.
That’s why some agents and sellers require a pre-approval letter before a potential buyer can view a home in person. Since pre-approval lets a buyer know exactly how much money a lender will loan them, it also helps target the right homes within budget.
5. Mortgage forbearance means you don’t have to repay your loan
The record unemployment caused by COVID-19 means millions of Americans struggling to pay their mortgages have been granted a forbearance. Almost 8 percent of mortgages—or 3.8 million homeowners—were in forbearance as of July 26, according to the Mortgage Bankers Association.
The problem? Many mistakenly assume that mortgage forbearance means you don’t have to repay your loan. Forbearance means different things for different homeowners, however, depending on the terms of the mortgage and the type of arrangement worked out with the lender.
Forbearance is not forgiveness; instead, it’s a timeout from having to make a mortgage payment where your servicer will ensure that negative impacts to your credit report and late fees don’t occur. That means you’ll have to work with your loan officer to find a resolution for the missed payments, like adding paused payments to the back end of the loan or repaying them over time.
