Many times clients call me to start the process and have picked up information somewhere along the way that is not accurate or doesn’t necessarily apply to them. Every single situation is different which is why I do an in-depth analysis for every client we work with that not only reviews their income, credit, and assets, but also looks at their long term plans, debt they may carry (including interest rates on those debts), and so much more. That is why my tag line is “Your Mortgage Partner For Life” because I have always looked at this process as so much more than a transaction.
As an example If you called me to buy or refinance your home and tell me that you are planning to stay in your home for 5 years and then upgrade to your forever home after 5 years, I am going to give you different advice than if you were buying your forever home.
Here are a few of the MORTGAGE MYTHS I hear regularly.
MYTH 1 Should I wait until I have a larger down payment or 20%?
Many people out there still believe that putting 20% down is required or preferred. Honestly, with 50 year record-low interest rates, in most cases I see that is simply not the case. Per additional $10,000 you put down the payment will only go down approximately $40 a month. Let’s just say you have a car payment with a $20,000 balance left to pay the car off of $400 a month with an interest rate of 6.5%. You have $40,000 total for the new house, but you are concerned about your payments going up. In many cases, we would recommend you use $20,000 for the house, and the other $20,000 to pay off the car. The $20,000 towards the house only changes the new payment $80 a month. The $20,000 to pay the car eliminates the $400 payment. It pays off a debt at a much higher rate (30 & 15yr mortgages are all under 3% right now). You can then take the extra $320 a month and use it to pay off other debt, set up an emergency savings, or pay extra to the principal to pay the house off faster.
What if you have $20,000 in credit card debt with an average rate of 8.5%? You get 4 different statements in the mail every month, and minimum monthly payments are $600 between the 4 cards. We know that if you take a look at the interest over time on just paying the minimum, the interest is exponential. Does it make sense to eliminate these cards at a high rate, and also give yourself some peace of mind to not have to pay 4 additional bills? Most of the time, yes!
Or how about this…what if you invested that extra $20,000 instead of putting it down on the house. Average rates on many investments are between 6-9% depending on your advisor and the type of account you invest in.
Could you even use that extra $20,000 to buy a rental property? Did you know that the majority of millionaires in America all have real estate as a huge part of their portfolio? I know Long Real Estate can help you start investing in real estate just as they have my family.
MYTH 2 I don’t want my loan to be sold because there will be issues.
I have so many people ask me about that because a friend of a friend somewhere has a nightmare story about their loan being sold and a problem that occurred. What happens when your loan is sold? The only thing that should change if this happens is who you make your payment to. The amount you financed, your interest rate, and principal & interest payment are all set in stone and cannot change. This information is actually recorded with the county for this very reason. So while there might be a slight hassle with having to set up a new online portal and automatic payment, there should not be anything else you should have to do. You actually have a grace period in which the new lender cannot report you late or collect a late fee when a loan is sold or transferred in case there is a delay of any kind with this transfer. Literally the only thing that should change when your loan is sold is who you make your payment to. There will always be one-off experiences where someone has an issue, or the new lender doesn’t have quite the same level of service as we did, but this should be the exception and not the rule. If you 100% are adamant about the originating lender servicing your loan, Fairway does have this option.
MYTH 3 If I don’t put 20% down I will have to pay mortgage insurance?
There are several kinds of mortgage insurance. The most common mortgage insurance option when not putting down 20% is to pay it monthly. However, if you have extra money available you can do something called single premium mortgage insurance. This allows you to pay an upfront fee to buy out the mortgage insurance upfront so that you do not pay it monthly. This option will have a lower monthly payment, but also increases your cash to closing. The better your credit score, the lower this cost will be. It saves clients exponentially vs. the monthly option when you analyze it over the life of the loan.
We also have an option for clients to do a 1st and 2nd mortgage combo which will keep you from having to pay mortgage insurance. In this option, you would finance 80% of the purchase price with a 1st mortgage. We would then set up a home equity loan for the remaining 10% of the purchase price which allows you to avoid paying PMI.
MYTH 4 My credit is not perfect so I cannot qualify to buy a house
There are many options out there to buy a home regardless of your credit score. Our lowest score program will go down to a 580 credit score. Fairway also offers FREE internal credit repair for our clients. If you don’t qualify for a house now we will put together a plan so you can qualify in the future. We also use this FREE service to help our clients who already qualify get better rates by improving their credit score while they house shop.
MYTH 5 The LOWEST interest rate loan is the BEST option
One of the first questions most people ask is “what is the rate?” What most people do not realize is that oftentimes the lowest rate is NOT the best. You ask WHY?
Many times lender quote rates with a discount cost or extra origination fees. Sometimes it does make sense to pay a discount to get a lower rate. Oftentimes if you plan to stay in the house long term, we will review this option for clients and calculate the time it will take to recover the cost vs. the monthly interest savings. Another time this might not be the best option is if you have very limited funds for closing. There is an option for the lender to increase your interest rate and offer you a credit towards your closing costs so you can reduce what you needed to purchase a home. This option is often used in refinance loans for a client who recently purchased their home. To avoid incurring costs again so quickly, you can take a slightly higher rate with a NO cost refinance loan.
MYTH 6 I have to sell my home first before I can buy a new one
Our market is incredibly competitive right now. If you are approved to buy contingent on your house selling first, you will not be as viable a buyer as someone who does not have to sell first. There are many ways I can approve a client to purchase a new home prior to selling their current one. The really great part of it is that once you sell your current home, you can take the proceeds from that sale and pay down your new loan and recast the mortgage payment without having to go thru a full refinance. This is a fairly easy and painless process.
MYTH 7 Renting is more affordable than buying a home
We are experiencing 50 year record-low interest rates. There has never been a time when money was this cheap, and in many scenarios, you can afford to buy a home for less than what you can rent for. Also, you get to reap the benefits of homeownership which are too many to even mention. Plus did you know homeowners have 7xs more net worth than renters do?!
Loan Officer – Your Mortgage Partner for Life
Fairway Independent Mortgage
NMLS – 229511