Five (Sub) Urban Mortgage Legends

Last week we talked about five real estate legends and clarified many confusing statements that are being made about the real estate market in general. Interestingly, there also seems to be a lot of confusing (and daunting) generalized information being spread through the media about mortgages. Have no fear! This week we’ll demystify five suburban mortgage legends for you.

1. I need to save 20% for a home down payment. False. While there are many advantages to having a 20% down payment for your home purchase (i.e., lower monthly payments, less interest paid over the life of the loan, eliminating the need for private mortgage insurance), there are many loan products available that do not require you to have a 20% down payment. Financing options are not a “one size fits all” kind of thing. There are a wide variety of loan options available based on your individual credit score, income and assets. The minimum down payment for first time home buyers is actually just 3% of the purchase price. And, while private mortgage insurance is required for most loans that are more than an 80% loan to value, there are even some mortgage options that don’t require PMI! Thankfully, the cost of PMI has come down quite a bit over the years so that additional cost is not as impactful as it once was.

2. It’s a good idea to “shop rates''. False. Instead of shopping rates, you should shop lenders! Interest rates are based on your credit score, your income, your assets, your down payment, and sometimes even the location of the property you’re buying. While interest rates are all dictated by the same criteria, the level of service, fee structure, and creativity will definitely vary from lender to lender. Our preferred lender, Key Mortgage Services, has represented the vast majority of the buyers we’ve worked with over the years. 100% of these loans have closed, and almost 100% of these buyers would recommend Key Mortgage Services to others. Key Mortgage also offers a second look program which incentivizes buyers to talk to them about their mortgage needs. This allows buyers who have been pre approved by another lender to have their loan application reviewed by Key Mortgage. Over 70% of the time, Key Mortgage Services is able to offer better rates/products/services and thereby create a better overall buying experience.

3. I cannot qualify for a loan to purchase a new home until/unless I sell my current home. Maybe. Just as interest rates follow the same qualifying criteria for every home buyer, so do the ratios required for qualifying for multiple mortgages. That makes good sense since both of these processes are highly regulated by the Federal government, who is backing most of these loans. The most prominent qualifier for multiple mortgages will be income, followed by your overall monthly debt (quantified as your Debt to Income Ratio). If you have a very low mortgage on your current home and your income has risen nicely over the years, you may be surprised at what you’ll qualify for your next home. And, if you want to keep your current home as a rental (in case you have a very low interest rate from 2021), you can use the income you generate from the rental as a qualifier for your next home IF you have an executed lease in place for your current home before you apply for the mortgage for your next home.

4. The Preapproval Process will hurt my credit score. False. While a “Hard Pull” on your credit does count as a credit inquiry, lenders have the ability to run a “soft pull”. This will provide the lender with most of the same information they need for the loan approval process without counting as credit inquiry. A key benefit to getting the loan approval process started early with a soft pull is that it can help you catch and address any potential issues with your credit, which will ultimately put you in the best position possible to purchase a home.

5. I need to be a W-2 employee or work a traditional job to qualify for a mortgage. False. You typically need two years of income/employment history if you are 1099’d. If you change jobs within the same industry, that’s normally okay. Watch your tax deductions if you’re self-employed, as the benefit you receive on your tax return could be detrimental to the loan approval process. With an educated loan officer by your side (think Mary and Tom Gill of the Gill Group at Key Mortgage Services - we’ll make the introduction!) there are creative solutions to be found for non-traditional workers that can help get you into the home of your dreams.

And…because we hear this a lot, here is a “bonus” suburban mortgage legend, demystified….

6. Student debt or car loans will prevent me from qualifying for a mortgage. Maybe. Having student loans or car loans does not automatically disqualify someone from purchasing. It all goes back to income, credit, and your debt-to-income ratios. If you know of anyone who would like a no-cost, no-obligation pre-qualification or pre-approval, we can help!

No matter what your transition looks like, we’d love to help guide you through the process. With over 25 years of combined experience, we’re confident we can help make your next real estate transaction, your best transaction. Reach out anytime. We love talking real estate!