8 misconceptions about mortgages

If you're in the market for a new home and have done some research into what it takes to get a home loan, you may already know that navigating the world of mortgages without guidance from an expert can be a major headache. It's like wading through a sea of confusing financial jargon with all the options and technical terms floating around. 

To make things worse, some major misconceptions out there could end up costing you big time. Here are our top 8 mortgage misconceptions you need to know.

 

1 – You need to put down 20% to buy a home.

While a whopping 20% down payment can help you avoid paying for private mortgage insurance (PMI), it's important to know that it's not the only way to get a mortgage.

Buyers with smaller down payments or low-to-moderate-income borrowers have options! For example, there's the Fannie Mae HomeReady® mortgage which offers down payment options as low as 3%. And VA and USDA loans don't require a down payment at all for qualified borrowers! FHA loans are another option, and they only require a down payment as low as 3.5%. 

• Need a Boost? 

• • The recently introduced Movement Boost down payment assistance program is designed to offer 3.5% and 5% down payment assistance options for FHA loans*. We're excited about this program because 3.5% is the minimum amount needed for a down payment on an FHA loan. 
  • And if you qualify for the 5% Movement Boost option, you'll have your 3.5% down payment covered and the remaining 1.5% goes towards closing costs via a repayable second lien with a 10-year amortization term and a rate at 2% above the first lien rate. It's another way we're helping buyers can get into their dream homes with little to no money down.

 

2 – You need a perfect credit score to get a mortgage.

While having a solid credit score is definitely a plus when it comes to getting a mortgage and scoring a lower interest rate, it's not the be-all-end-all. Thankfully, some great home loan options are available for those with less-than-perfect credit scores. 

FHA Loans are government-backed and designed to help homebuyers with lower credit scores qualify for a mortgage. If you're a veteran, active-duty service member or eligible surviving spouse, you may qualify for a VA Loan, which requires a lower credit score than most conventional loans. Similarly, USDA Loans have lower credit score thresholds and is an excellent option if you're open to buying a home in a rural area. 

Whichever loan is right for you, check out these great tips for improving your credit score.

 

3 – You should always go for the best rate.

While interest rates are important when choosing a lender, they are not the only factor to consider. Others, such as closing costs, fees and customer service, should also be taken into account. 

When you work with a lender that has bad processes and customer service, it can lead to a bumpy home-buying experience. These kinds of lenders can slow down the mortgage process by not responding to requests for documents or having a disorganized underwriting process which could mean missing important deadlines or even losing out on the home you had your heart set on. 

Plus, dealing with a bad lender could result in unexpected fees, mistakes on important paperwork and leave you feeling frustrated throughout the whole process. That's why it's crucial to do your homework and pick a lender with a solid reputation for customer service.

Then there are other things to think about, like how your mortgage can impact others. For example, through the Movement Foundation, we put our profits to work in communities of need in the U.S. and worldwide. So, part of every mortgage payment we receive goes to help build self-sustaining schools, health clinics and housing.

4 – You can't get a mortgage if you're self-employed.

A Qualified Mortgage is a type of loan that is considered less risky, making it more likely for you to be able to afford your mortgage payments. Before taking out a mortgage, the lender must assess your ability to repay it in good faith, as part of the “ability-to-repay” rule.

But what if you're self employed or a gig worker? Maybe you wish you could stop renting and finally own your own place but can't meet all the requirements of a Qualified Mortgage. If that sounds like you, don't assume that getting a mortgage is impossible! 

If you've been told by other lenders that you can't qualify for a traditional mortgage — due to factors such as self-employment, complex income streams, or a high debt-to-income ratio — you might want to consider a Non-Qualified Mortgage (Non-QM). With these loans, borrowers may have the flexibility to use alternative forms of income verification or be evaluated based on their overall financial picture rather than just their credit score or debt-to-income ratio. 

Just be prepared to provide some extra documentation and jump through a few more hoops to get approved for a Non-QM loan. Here are some more tips for freelancers, contractors and people who work for themselves.

 

5 – Pre-qualification and pre-approval are the same.

While often used interchangeably, pre-qualification and pre-approval refer to two different stages of the mortgage application process. 

Pre-qualification is kind of like dipping your toe in the water. You give the mortgage lender some basic financial info and they give you a rough idea of how much they might be willing to lend you. 

Pre-approval is a bigger deal. The lender digs into your credit score, income and other financials to definitively tell you whether or not they'll give you a mortgage and for how much. Pre-approval takes longer, but it's a more accurate picture of what you can afford. 

 

6 – You can apply for a mortgage repeatedly with no effect.

While it can be tempting to apply for a mortgage as soon as you see a house you like, don't overdo it. Applying for multiple mortgage loans through different lenders can hurt your credit score. Limiting your mortgage applications to one lender who can provide you with great service is the better way to go. 

That's why we recommend going through the pre-approval process: you'll know exactly what you can afford before you start house hunting and you'll have one lender that you're working with. Then when you're ready to apply for the loan, it's one and done. 

 

7 – You have to pay off debts before applying for a mortgage.

While having a high level of debt can impact your ability to get approved for a mortgage, it is unnecessary to pay off all your debts before applying. Lenders consider your debt-to-income (DTI) ratio to figure out how much you can afford to borrow. 

To do this, they'll divide your gross monthly income by your total monthly debt. For example, if you earn $4,000 in income each month and have $1000 in monthly debt payments, your DTI would be 25%. The general rule is to keep DTI at 43% or less. Here are some tips on managing the types of debt that can affect your mortgage. 

 

8 – Getting a home loan is way too complicated.

While getting a mortgage can sound overwhelming, it doesn't have to be. It's really just four steps: pre-approval, home shopping, underwriting and closing.

Once pre-approved, you shop for homes within your price range. If you find a home you want to buy — and your offer gets accepted — you'll go into the underwriting stage, where the lender verifies that all the info you provided during pre-approval is still valid. If it all checks out, you move on to the closing stage, sign the paperwork, grab the keys and officially become a homeowner. 

While it sounds complex, working with a knowledgeable lender can help make it less stressful. Take a look at how easy the process is at Movement Mortgage. 

 

No More Misconceptions

We hope you found this helpful in sorting out what's real and what's not about the mortgage process. Knowing the facts will give you the confidence to take the plunge and buy your first home.

Excited to get started? Just contact a local Movement loan officer 😊. We'll happily help you through the mortgage process and get you closer to becoming a homeowner!

 

*For qualified borrowers. Down payment assistance is in the form of repayable second lien with a ten year amortization term and a rate at 2% above the first lien rate. Additional restrictions apply.