7 Mortgage Myths You Need To Know
3 MIN READ
When you’re buying a home, it can feel like information overload! You’re being asked to turn over lots of sensitive documents and are encountering lots of complicated terms and concepts. Everyone around you is giving you suggestions and tips and you’re not sure who to trust. There is a lot of misinformation out there that can lead home buyers astray. Well, we’re here to give you the real deal!
Here’s 7 mortgage myths we want to clear up:
“You should never put less than 20% down.” While it’s nice to be able to put down 20% and helps to avoid paying for private mortgage insurance - PMI, there are plenty of loans that allow for down payments as low as 0%. Conventional, VA, and FHA loans are all examples of loan programs that offer loans with very low downpayment requirements.
“You can’t get a mortgage if you have student loans.” While lenders do look at your debt when determining your eligibility for a loan, they’re more focused on the amount you pay on your debt each month compared to your monthly income. It’s definitely possible to get financing for a home with student loans. If you are able to comfortably make your student loan payments each month, you will likely qualify for a mortgage.
“You need at least a 640 credit score to get a home loan.” Many government loan programs have lower credit score requirements. Federal Housing Administration (FHA) loans are an example of a loan program that can be acquired even with bad credit. Know that loans that take those with worse credit often have stricter downpayment requirements, higher interest rates, and might require that you purchase PMI. It is a good idea to have a credit score of at least 580 before applying, however.
“You only need enough savings to cover the downpayment.” While the downpayment is often the biggest upfront cost of buying a home, other costs like home appraisals, inspections, and closing costs also add up. Additionally, it’s a good idea to have at least two months of mortgage payments saved prior to committing to a loan.
“Don’t get too many mortgage quotes because it will hurt your credit.” Actually, when it comes to mortgages, there is a concept called “rate shopping.” If multiple lenders pull your credit within 30 days, it only counts as one “hard pull” on your credit. So get lots of quotes to get the best rate!
“I only need to think about whether I can afford the mortgage payment since it is fixed.” If you are getting a conventional fixed rate mortgage, then yes the mortgage payment will be fixed over the life of the loan but the actual payment may change because your property taxes and homeowners insurance may go up, which are typically bundled into your mortgage payment. In addition, your utility or maintenance costs may change.
“Mortgage interest is tax deductible.” Yes, mortgage interest can be tax deductible but under the 2018 Tax Cuts and Jobs Act, the rules were changed and it has become harder to take the deduction. With the increase in the standard deduction to $12,200 for single filers and $24,400 for married filing jointly (in 2019), fewer people will take the mortgage interest deduction because it requires that you itemize your deductions and don’t take the standard deduction. Most people will find that it’s not worth it to itemize their deductions. In addition, there are now caps on how much mortgage interest you can deduct.
Bonus Myth: “You don’t really need to get the home inspected.” Neglecting to get a home inspected before closing is very risky - home may have serious underlying issues that can cost a lot to remediate. A home inspection, even for brand new homes, helps to uncover any unforeseen issues that can be dealt with before you close on the house. In some cases, you may even want to back out of an offer if the issues are very serious. Inspections usually cost between $300-$500, a small cost compared to the possibility of massive repair bills in the future.