It’s been 11 years since the housing market collapsed in 2008 and stricter mortgage regulations went into place. Since then, the market has certainly changed with home prices continuing to rise year after year and mortgage rates staying reasonable. Mortgage regulations have also softened and more loan options have been introduced. Still, a lot of potential homeowners misunderstand what it takes to qualify for a mortgage.
At Transparent Mortgage, we want to dispel some of these myths and make sure people can take advantage of their home buying opportunities in today’s market.
Myth #1: Getting a Mortgage Loan is Hard
Let’s start with this general train of thought. Qualifying for a mortgage may be a little harder now than it was back before 2008 when they were handing out subprime mortgages like crazy. However, it’s actually easier to qualify than you might think. In fact, the regulations that have been put into place are a blessing because they have help stabilized the market by protecting lenders and consumers from bad loans like before.
Myth #2: I Need a Really High Credit Score
Having a good credit score is beneficial and it will help you get better loan terms, but it is not the only thing lenders look at when approving a home loan. The minimum FICO score required to apply for a loan is only 550 and there are a number of different loan options and mortgage products specifically designed to help people with lower credit scores and debt-to-income (DTI) ratios.
Myth #3: I Have Too Much Debt to Qualify
Speaking of DTI, this is an important topic to cover. You certainly don’t want to drown yourself in debt and a mortgage will likely be the biggest debt you will undertake. A lot of the regulations put into place after 2008 were focused on establishing lower minimum debt-to-income ratios for qualified borrowers. Again, there are programs and creative mortgage options that can help people with DTIs as high as 50% qualify for a home loan. It is a slippery slope, though, so we highly recommend talking with an experienced mortgage advisor to make the right financial decisions when it comes to managing current debt and applying for a mortgage. Ideally, the less out of debt you are, the better off you will be when applying for a mortgage.
Myth #4: I Can’t Afford a Huge Down Payment
A poll from Fannie Mae found that consumers overestimated how much down payment was required to secure a mortgage loan. Some thought it was as high as 20%. The truth is there are FHA-backed loan options that require a minimum down payment of only 3.5% and there are even options with a 0% requirement if you qualify for certain loans backed by the U.S. Department of Veterans Affairs (VA Loans) or the U.S. Department of Agriculture. Most loans that require less than 20% down payment will mean that there are mandatory private mortgage insurance (PMI) with each monthly mortgage payment until a certain amount of principal is paid off (usually 20%, as you might expect).
Myth #5: It’s Cheaper to Rent
Many renters are afraid to buy because they worry it will be more expensive. It can be depending on the property you purchase, but real estate ownership brings much more long-term rewards. Rent prices (especially here in San Diego County) continue to skyrocket in conjunction with home prices and none of those rent payments go toward anything but your landlord’s pockets. Owning a home or condo allows you to build up equity as you pay off your property through the mortgage loan and as the real estate appreciates in value over time. In addition, there are many other exceptional tax benefits that homeowners get that renters do not.
If you have questions about what it will take to buy a home or you might be in a position to refinance your current mortgage loan, it never hurts to talk with an expert. Call Transparent Mortgage today at (619) 701-3906 for a no-obligation mortgage consultation or to get pre-qualified for a loan. We’ll help you explore all your options and make the right decisions.