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  • Writer's pictureMarimarie Vanover

Debunking 8 Florida Mortgage Myths Getting in Your Way

Many prospective home buyers are making decisions with inaccurate information. Maybe they picked up these myths from their online searches, in conversations with unknowledgeable people, or from their unchecked assumptions.

Whatever the source, we’re here to put an end to these Florida mortgage myths once and for all. Below you’ll find eight common myths we hear regularly and our take on them. So if you’re in the market for a mortgage, it’s time to arm yourself with the correct information so you can make well-informed decisions for yourself and your loved ones.

Myth 1: You Need 20% Down To Purchase A Home

Many people believe that if you don’t have at least 20% down, you can’t buy a home. This isn’t true. If you take out a conventional loan, you can buy a home with as

little as 3% down. Some types of government-backed loans even have 0% down payment requirements.

Myth 2: Prequalification Is The Same As Pre-approval

The main difference between preapproval and prequalification is the level of verification your loan officer does before they issue you an approval letter. When you get preapproved for a mortgage loan, it means that your loan officer has verified your financial information from your bank statements, pay stubs/W2’s, and Tax returns and has reviewed your credit report. This makes a preapproval much more accurate than a prequalification.

As a general rule, you’ll want to get a preapproval before you begin shopping for a home. A prequalification can be an excellent first step to finding how much you might qualify for but doesn’t carry much weight when you want to make an offer on a home.

Our team verifies your credit, income, and assets with the documentation you provide us and tells sellers that your finances are in order and you’re ready to buy!

Myth 3: You Can Never Pay Your Mortgage Off Early

Some lenders may include clauses called “prepayment penalties” inside the terms of your loan. A prepayment penalty is an agreement that penalizes you if you pay off your mortgage too early. Prepayment penalties are much less common than they once were. Many lenders offer loans with no prepayment penalties at all. For example, if you choose a conventional or Government loan through Your Florida Mortgage Lady, you will not need to worry about dealing with a prepayment penalty. You’re free to pay off your loan as soon as you want, and you can make an extra payment toward your principal at any time.

Myth 4: Your Down Payment Covers Your Closing Costs

When most people think about buying a home, their first thought is their down payment. Your down payment is usually the largest payment you’ll make when you invest in a home, but you’ll also need to pay your closing costs.

Closing costs are processing fees that you pay to your lender in exchange for creating and finalizing your loan. Closing costs cover things like the price of your appraisal and your title insurance. Like your down payment, closing costs are due when you close on

your home’s loan. Closing costs are independent of your down payment and can range between 3% – 6% of the total balance of your loan.

If you cannot afford your closing costs, you may ask the seller to cover a percentage of your closing costs (also referred to as seller concessions), but there are limits to how much they can contribute based on your loan type.

Myth 5: You Must Have Perfect Credit To Qualify For A Mortgage

Credit plays a significant role in your ability to get a home loan. However, this doesn’t mean that you need perfect credit to buy a home. There are several mortgage solutions for people who have lower credit scores.

If you have a lower credit score and you’re buying your first home, consider an FHA loan. FHA loans are government-backed loans with insurance from the Federal Housing Administration. This insurance allows lenders to issue FHA loans with lower credit and income requirements than conventional loans. Usually, a minimum credit score of 580 or higher is required. For most other types of loans, you’ll need a score of at least 620 points – though this standard can vary by lender.

Myth 6: Applying For A Mortgage Will Hurt Your Credit

There’s a bit of truth to this mortgage myth. Whenever you apply for a new loan or line of credit, your credit score will take a minor hit. However, this temporary decrease will only last a short time.

When you apply for a mortgage loan, your score will temporarily drop. However, you likely won’t see this effect until you receive your mortgage pre-approval. You can maximize your chances of getting mortgage approval by avoiding applying for new credit cards or loans in the months leading up to your mortgage application.

Myth 7: Having Debt Or Student Loans Is A Deal Breaker

Most people have some kind of debt, from student loans to credit card debt. You might have heard that it’s impossible to get a mortgage loan if you aren’t debt-free. When determining you can afford to buy a home, one of the first things lenders look at is your debt-to-income ratio. Your DTI ratio is a percentage calculation representing the percent of your monthly income toward debt and recurring expenses. You can calculate your DTI ratio by adding up all of your minimum regular payments and costs, then dividing them by your total monthly household income.

The higher your DTI ratio, the riskier you are as a mortgage candidate. However, if you have a DTI ratio of less than 50%, you’ll usually be able to get a mortgage loan – even if you have debt.

Myth 8: Never Get An Adjustable-Rate Mortgage

Adjustable-rate mortgages are mortgage loans with interest rates that change over time. Here’s how they work. First, your loan begins with a period of fixed interest. This fixed interest period may last 5 – 10 years. During this period, you’ll pay a standard interest rate that’s lower than the current market rates. Once this period ends, your interest rate may go up or down, depending on how market rates move.

Many buyers assume that ARMs aren’t a good idea because they don’t know exactly what their interest rate will be. If you’re considering an ARM, you might be afraid that if market rates continue to rise, you might get trapped in a loan that’s significantly more expensive than the one for which you signed up. However, ARMs have caps in place to prevent your interest rate from rising (or falling) by too many percentage points. ARMs aren’t suitable for everyone. If you think you’ll be in your home for a long time and need a set monthly payment, a fixed loan might be better for you. However, if you think you’ll pay your loan off early or you aren’t planning on living in your home for many years, an ARM can be a fantastic choice.

Several commonly believed mortgage myths can make the mortgage approval process more confusing. For example, you might have heard that you can’t buy a home if you have debt or less than 20% down. However, the truth is that you can purchase a home with $0 down in some cases, and you can still qualify for a loan with debt. Be sure to contact me today before you apply for a loan!

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