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Mortgage News Matters

Unmasking Mortgage Myths: Debunking Common Misconceptions for Homebuyers

Applying for a mortgage can seem like a labyrinth of uncertainty, especially for first-time homebuyers navigating unfamiliar terrain. The realm of mortgage information often brims with confusing and conflicting notions, leaving potential borrowers hesitant to embark on this journey.

To provide much-needed clarity, we’re here to dispel six prevalent mortgage loan myths, unraveling the truths beneath the misconceptions.

1. The 20% Down Payment Dilemma Debunked

A pervasive myth suggests that every loan type mandates a hefty 20% down payment. This misleading belief deters many from even considering homeownership due to perceived financial limitations. The reality is different—borrowers lacking a 20% down payment can still secure a loan by opting for Private Mortgage Insurance (PMI). Though PMI entails an additional monthly expense, it safeguards lenders in case of borrower default. Certain Conventional or FHA loans allow down payments as low as 3-5%, presenting viable alternatives. Once you amass 20% home equity, you can bid adieu to PMI and continue making mortgage payments sans the extra burden.

2. Distinguishing Pre-Qualification from Pre-Approval

Clarity is imperative when understanding the distinction between pre-qualification and pre-approval. Pre-qualification provides an approximate borrowing estimate based on current finances and credit score, aiding in identifying suitable loan options. On the other hand, pre-approval delves deeper, encompassing a comprehensive financial evaluation, including credit checks. It culminates in a written commitment from the lender, specifying the maximum loan amount they can extend.

3. Demystifying Down Payments and Closing Costs

The notion that your down payment also covers closing costs is a common fallacy. While the down payment is a significant upfront expense, it exclusively caters to the home’s principal value. Closing costs, encompassing fees like appraisals and title insurance, remain a distinct financial aspect. Typically ranging between 3% to 6% of the loan balance, closing costs warrant separate consideration.

4. Imperfect Credit and Homeownership

Contrary to the myth of requiring flawless credit, aspiring homeowners with less-than-perfect credit have options. FHA loans, backed by the government, provide a viable avenue for those who don’t meet conventional loan requirements. Furthermore, proactive credit-building steps can pave the way for eligibility and improved loan terms.

5. The Temporal Impact of Mortgage Applications on Credit

Concerns about mortgage applications negatively affecting credit are valid, albeit temporary. Similar to applying for other lines of credit, a mortgage application may lead to a short-lived dip in your credit score. However, this effect typically surfaces after the pre-approval stage. For credit-conscious individuals, refraining from opening unnecessary lines of credit during this period is advisable.

6. Debt and Homeownership: Debunking Misconceptions

The belief that homeownership hinges on a debt-free existence is a misconception. Many Americans shoulder various forms of debt, be it student loans or car payments, without precluding homeownership. What matters is your debt-to-income ratio, revealing the proportion of your income allotted to debt payments. A lower ratio signifies a less risky borrower. Addressing debt through repayment strategies or increased income generation can enhance your eligibility and broaden homeownership prospects.

In conclusion, navigating the realm of mortgages demands a clear understanding untainted by myths. Armed with accurate information, potential homebuyers can make informed decisions, secure suitable loans, and realize their homeownership dreams.

Have questions about mortgage myths or seeking expert guidance? Contact us today for accurate insights tailored to your needs.

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Mortgage News Matters

Costs to Consider When Purchasing a Home.

Buying a home is likely to be the largest purchase you make in your lifetime. Along with the price tag, there are other costs to also consider. Costs will vary from buyer to buyer due to a few different factors including the type and length of the loan you receive, as well as location and demand. It is important to familiarize yourself with these financial obligations prior to beginning your home search. To help with understanding more about what comes along with the purchase of your home, here is a list of costs you will need to consider.

Down payment:

The down payment is a set price you pay upfront when you purchase a home. Through a conventional loan, a down payment is required and will be determined based on the property type and the price of the home. The amount you put down on a home will affect your interest payment as well. The larger the down payment, the lower your interest rate. However, some loans such as a VA loan or USDA don’t always require a down payment.

Closing Costs:

To finalize your mortgage loan and receive the keys to the property, you will have to submit all closing costs. These costs are each directly related to your mortgage and include the following.

  • Application fee
  • Appraisal fee
  • Credit check fee
  • Underwriting fee
  • Title insurance
  • Title search fee

Property Taxes:

Your property taxes are calculated by your local government where your property is located, and you are required to pay them as long as you own the home. These taxes are based on the value of your home or property and if over time the value is assessed to a higher value, your taxes will increase.

Homeowners and Mortgage Insurance:

Home insurance protects your property against the cost of potential damage from unforeseen circumstances. Homeowners insurance will vary as there are many options available, so it is best to shop around before deciding which one to go with. Mortgage insurance reduces the lender’s risk if you can’t make your mortgage payment.

HOA Fees:

If you are purchasing a home overseen by a homeowners association then you will be required to pay a monthly fee to the community. These fees are in place to keep shared spaces within the neighborhood maintained such as a gym, pool, or landscaping. They also protect other people’s property values by restricting a single homeowner from making a change to their home.

Maintenance Fees:

No matter where you choose to live, you will always have to keep up with regular maintenance and home repairs. Keeping extra funds on the side or setting up an emergency fund for replacing items will help you be better prepared when things break. Planning out a budget and knowing what costs to expect as you begin your home buying journey will eliminate any surprises that you may not have been prepared for.

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Mortgage News Matters

6 Common Mortgage Loan Myths

trusted mortgage loan professional

Applying for a Mortgage can often feel overwhelming, especially for first-time homebuyers who are completely new to the process. Confusing and conflicting information can leave many borrowers reluctant to even start the process at all.

In efforts to provide more clarity, we’ve debunked 6 common mortgage loan myths below!

  1. 20% down payment required. It is a common belief of many potential homebuyers, that no matter the type of loan you are applying for, you will be required to put up a 20% down payment. This information is harmful because it is not true and can deter a lot of people from even considering applying for a mortgage, who are sure they don’t have the appropriate amount of funds.

    Borrowers who are unable to come up with a 20% down payment can still be eligible for a loan when they get Private Mortgage Insurance or PMI. An added expense on your monthly payments, PMI provides protection to the lender in the case that the borrower defaults on his or her loan.  

    This type of insurance is a common requirement for some Conventional or FHA loans with down payments as low as 3-5%. Keep in mind that once you own 20% equity in your home, you can cancel your private mortgage insurance and continue to make your mortgage payments without the extra expense.
  2. Pre-qualification is the same thing as pre-approval. This common misconception is important to clear up, as both pre-qualification and pre-approval are extremely helpful to the home-buying process and both play an important role.

    Pre-qualification is an estimation of the amount of money you can borrow, based on your current finances and credit score. It provides insight as to which loan option is best for you.

    Pre-approval is a more in-depth examination of your finances, including a credit check, that results in a written commitment from your lender of the maximum amount of money they can lend you.

    For more on the benefits of getting pre-approved along with our pre-approval document checklist, visit our pre-qualification vs. pre-approval page here.
  3. Your down payment covers the closing costs. The down payment is usually one of the first expenses that a potential homebuyer will begin saving for. This makes sense because it is usually one of the largest upfront expenses you will have. However, when saving for your down payment, it is important to keep in mind that it does not cover your closing costs.

    Closing costs are a separate expense that covers your processing fees, like the appraisal and title insurance, and usually range between 3% – 6% of the total balance of your loan.

    For more information on Costs to Consider, refer to our article here.
  4. You must have perfect credit. Many people are under the impression that your credit must be perfect before even considering purchasing a new home. Though lenders are looking for borrowers with good credit scores, there are many options for those who have less than perfect credit.

    One option for borrowers who find themselves in this category is to consider applying for an FHA loan. Insured by the government, this type of loan is perfect for those who may not meet the qualification factors required for a traditional conventional loan program.

    It is also important to keep in mind that there are many steps you can take to work towards building good credit. For more on this, reference our guide on Credit Clean Up Tips.
  5. Applying for a mortgage will hurt your credit. While it is true that applying for any new type of loan or line of credit will harm your credit, it will only do so temporarily. This is the same in the case of applying for a mortgage. However, it is likely that you won’t see this temporary hit to your credit until after you’ve already been pre-approved.

    If you are trying to avoid any harm to your credit during this time, it is a good idea to refrain from opening any unnecessary lines of credit.
  6. You can’t be in debt and buy a home. If this myth were true, most homeowners would not be in their homes today. Debt, in many forms, is common amongst many Americans, whether they are in the process of paying off a student loan or currently making payments on a car. And neither of these things should stop you from owning a home.

    The important number to consider here is your debt-to-income ratio. This number shows the percentage of your monthly income that goes towards debt payments and reoccurring expenses. The higher your debt-to-income ratio, the riskier you are as a borrower. Therefore, you want a low debt-to-income ratio when applying for a mortgage loan.

    If you find yourself in a higher debt-to-income ratio category, consider paying down your debt or finding a way to generate more income. Both of these solutions will help you get started on a path towards a lower debt-to-income ratio and open more opportunities for you to buy a home.
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Mortgage News Matters

8 Reasons that Could Delay Closing on a New Home

man and woman holding keys to new home

At VanDyk Mortgage, we are determined to provide you with a seamless and efficient experience, from the moment you apply for your loan until you close on your new home.

Though we work tirelessly to make sure you close on time, want wanted to share some common reasons that could cause a delay.

  1. Pest Inspection. Ideally, these issues are resolved before escrow closes, but sometimes there are issues and further action may need to be taken by either the buyer or the seller.
  2. Low Appraisal. In the case of a lower-than-expected appraisal, the seller may have to lower the selling price, or the buyer will have to pay the difference in cash. In this case, we always think it is a good idea to get a second opinion before moving forward.
  3. Claims to the Title. Title insurance protects both the buyer and lender against claims on the property. If there is in fact a lien or a claim, this will have to be resolved before the transaction can move forward. By simply performing a title search, you can ensure that no party – including the IRS, state, or relative of the seller – has any legal claim to the property.
  4. Home Inspection Defects. Most individuals sign a home inspection contingency, which allows the purchaser to back out of a deal without penalty in the case that there is a major defect in the home inspection. If a contingency is not put in place, the purchaser could lose the entirety of their earnest money down. If the sale proceeds, there may be a delay due to the time it took to go through negotiations.
  5. Buyer or Seller Doubt. Having cold feet is very real, and something that can certainly delay the closing of a new home. Unless there is a legitimate reason to back out of the purchase, i.e., not waiving a contingency or a deadline not being met, the buyer will be at risk of losing their earnest money, should they decide not to go through with the sale.

    This money is used to compensate the seller for the time that the property was taken off the market, missing out on other possible offers. Likewise, in the case of a seller having cold feet, the buyer is eligible for damages from the seller.
  6. Financing Falls Through. It is best practice to get pre-approved, at the very beginning of your homebuying journey, in order to secure the best mortgage loan program for you. However, there are cases, such as a drastic increase in interest rates, a change or loss in employment, or a decrease in credit score, when financing falls through. If this happens, the homebuying process can be delayed or even stopped altogether.
  7. High-Risk Location. In some locations, homes may require Hazard Insurance. To determine if you will need this type of insurance for your new home, you can request a National Hazard Disclosure Report, and see if any national hazards in the area could affect you.

    Hazard Insurance is often greater than homeowner’s insurance and can cause a delay in the closing process. To avoid this, you can ask your agent or city planner about national hazards in your area.
  8. Survey Issue. Before closing on your home, a qualified land surveyor will draw up the boundary lines for your property. In the case of an infringement, either by a neighboring tree or fence, you may have to hire an attorney to facilitate a lot-line agreement.