On average, it takes about 70 days to buy and close on a house. For most homebuyers, the hardest part of the process is finding a great house loan to help finance the purchase.
If you’re thinking of buying a home, you’ll quickly encounter many myths and misconceptions about the mortgage process once you start your search. Unfortunately, some of those myths can make finding and applying for a loan harder than it needs to be.
Here are a few of the most common myths you need to be aware of and why they’re wrong.
1. You Can’t Qualify With Bad Credit
It’s common knowledge that your credit score can make a huge difference when you’re applying for any type of loan. The higher your score is, the better your application will look to prospective lenders.
This is because a high credit score indicates that you’re a safe borrower. You’re more likely to make payments on time and less likely to default on the loan.
But that doesn’t mean you need to have great credit to qualify for a mortgage. In fact, many lenders are willing to work with people with less than stellar credit scores. You just need to look around.
Ask your mortgage broker about the minimum credit score requirements each lender has. Then, narrow your search for loans down to those lenders that are willing to work with you.
2. You Need a Large Down Payment Saved Up
Saving about 20% of the home’s purchase price to use as a down payment may still be considered ideal. But that doesn’t mean it’s a firm requirement.
Believe it or not, you can buy a house with much less saved up. You just need to know what to expect when you make a smaller down payment.
Lenders often ask you to pay private mortgage insurance if you put less than 20% down on a house. This helps protect their investment should you default early on in the loan.
Once you make enough payments to build approximately 20% equity in the house, you’ll be able to stop making those additional payments.
3. Shopping Around for a House Loan Isn’t Helpful
There’s a common misconception that shopping around for lenders isn’t in your best interest. It’s thought to hurt your credit score or make the home buying process take longer than it should. Though there is some truth to this, shopping around is actually the best way to find a loan that fits your needs and your budget.
When lenders run your credit score during an initial mortgage application, your credit score will likely change as a result of the inquiry. But after that initial credit check, you have a grace period before any further credit checks will show up on your report.
That means you’re able to apply and get quotes from several lenders without it hurting your credit score. Use this to your advantage!
When you start looking into financing for house purchases, get quotes from several lenders and compare those quotes in detail. Choose the lender that offers you the best loan amount with the best interest rates.
If you’re a member of a professional organization or work in a high-demand industry like medicine or construction, mention this to each lender you speak with. Though who they help varies from lender to lender, you may end up getting a better deal on a mortgage because of what you do for a living.
4. You Can Only Apply if You Have a House in Mind
It might seem like you need to know what home you want to buy before you can start looking for a loan for buying a house in the first place. Luckily, nothing could be further from the truth.
You’re able and encouraged to start looking at different lenders and mortgage options as soon as you decide you want to buy a house. You don’t need to know which specific home you’ll end up in. And the sooner you start the process, the better off you’ll be.
By getting pre-approved for a home loan before you know which house you’re interested in, you’ll be able to determine your budget from the beginning. Lenders will tell you how much they’re willing to lend you so you can shop for homes at or below that amount.
5. Lenders Will Penalize You if You Pay the Loan off Early
When you take out a mortgage, lenders expect you to pay the loan off in full by the end of the loan term. For most home loans, this term ranges from 5 to 30 years.
Though lenders want you to take the full loan term to repay loans, you don’t always have to. The sooner you pay the loan off, the less you’ll pay the lender in interest. And most lenders won’t penalize you for paying your loan off in full early.
That said, this can vary from lender to lender. Before you start making extra payments, review your loan details and paperwork or contact your mortgage broker. Make sure there are no early repayment penalties associated with your loan.
If there aren’t, you’re free to pay your loan off as quickly as you want to.
6. You’re Better off Renting
When the housing market is tight and there are more buyers than homes available, it’s easy to assume that you’re better off renting. You’re not.
Your rent payments go to your landlord. Even if you stay there for 20 years, you’ll never build equity in the rental—your landlord will.
If you have the means and are willing to put in the hard work to find a great house, you’ll be better off buying. You might even save money since most mortgage payments are lower than average rent prices.
Now You’re Ready to Start Applying for a Mortgage
These are just a few of the most common myths associated with applying for a house loan and financing a new home. Now that you know the truth behind the myths, you’re ready to start applying for financing for yourself.
Once you’re pre-approved, you’ll be able to make offers on homes as soon as you find one you like.
Actually buying a house is just the first step in homeownership. Check out our latest posts for more tips to help you make the transition from tenant to homeowner with confidence.