Let’s clear up some of the most common mortgage myths that you should be aware of when purchasing a home.
No, your closing costs do not include the down payment. Don’t be surprised when you need additional cash to cover the closing costs after putting money down.
Closing costs are processing fees, typically running between 2% and 5% of the loan amount. These expenses cover the services required to process the loan. Closing costs may include loan application fees, attorney fees, title fees, appraisal fees, title insurance, credit report charges, and more.
The down payment is the amount of money paid upfront to purchase a home. Borrowers put a percentage of the home’s value down and borrow the rest through a mortgage loan. As you’re gathering funds for closing, make sure to budget for both closing costs and the down payment!
Most people have some kind of debt, whether it’s student loans, credit card debt, or medical expenses. You don’t have to be 100% debt-free to qualify for a loan. However, lenders will look at your debt-to-income ratio to measure your ability to manage monthly payments and repay the money that is borrowed.
Your debt-to-income (DTI) ratio compares how much you owe each month to how much you earn. DTI is calculated by dividing total monthly debt payments by gross monthly income before taxes and expressed as a percentage.
The higher your DTI ratio, the riskier you are as a mortgage candidate. Generally, as long as your DTI ratio is less than 50%, you’ll be able to qualify for a mortgage loan – even with debt.
Related: Debt-to-Income (DTI) Ratio
Mortgage pre-approval is a preliminary evaluation of your financial history to determine how much money you can borrow to purchase a home. Lenders look at your credit history, credit score, DTI ratio, employment history, assets and liabilities, and income.
Getting pre-approved moves you one step closer to homeownership by making you a more attractive buyer, demonstrating your creditworthiness, and saving you time so that you can close fast. So, what's the problem?
You can still be denied a mortgage loan after being pre-approved. Some reasons for being denied may include change of employment, additional debts, loan requirements or lender guideline changes, appraisal issues, and credit score changes. During the mortgage loan process, please avoid changing jobs, applying for new credit, canceling credit cards, and making any large purchases.
It’s a common misconception that you need 20% down to purchase a home. With today’s mortgage loan options, you can put as little as zero dollars down to purchase a home!
No-down-payment mortgage options provide an opportunity for homebuyers to purchase a home with no money at closing. For example, USDA loans make homeownership possible for low- and moderate-income families in rural areas, and VA loan programs provide unbeatable benefits for active service members, veterans, and surviving spouses.
Not eligible for USDA or VA loans? There are many low down payment loan programs available, such as FHA loans (3.5%) and conventional loans (3%), among others. You don’t need 20% down to buy a home anymore!
Related: USDA Loans, VA Loans, FHA Loans
While credit plays a huge role in your ability to get a loan, this doesn’t mean that you need perfect credit to qualify. If you have a low credit score, there are still mortgage options for you.
Home loan options for buyers with bad credit include FHA loans, conventional loans, VA loans, and USDA loans. For example, you can qualify for an FHA loan with a credit score as low as 500 and 10% down.
If these mortgage loan options don’t work for you, work on improving your credit score first. Three factors – payment history, credit utilization, and credit history length – have the largest impact on your credit score. A higher credit score can unlock savings and benefits, including access to more favorable loans.
Related: 5 Steps to Improve Your Credit Score
An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). FHA home loans were designed for low-to-moderate-income borrowers as they require a lower minimum down payment and lower credit scores than many conventional loans.
While especially popular with low-income and low-credit homebuyers, FHA loans are an excellent choice for first-time homebuyers. With an FHA loan, you can purchase a home with as little as 3.5% down and a minimum credit score of 580. Due to its flexibility and low rates, all borrowers may want to take advantage of FHA home loans.
Related: FHA Loans
All mortgage brokers and lenders are not created equal. Products, closing costs, additional fees, interest rates, and mortgage guidelines vary from one lender to another.
While finding a low interest rate is important, there are other factors to consider. Most importantly, watch out for hidden "junk" fees. Junk fees are unexpected charges that are tacked onto your mortgage. Some lenders may advertise low rates but have hidden junk fees that will surprise you at closing.
Be on the lookout for excessively high fees in the following areas:
Besides finding the lowest rate, it’s important to work with a lender that is trustworthy, reliable, and transparent. Find a mortgage broker or lender that will put your needs first and can educate you throughout the mortgage loan process.
No, the mortgage process is not difficult or stressful…if you work with the right mortgage broker or lender. At Loan Pronto, we believe that simpler is always better. We respect your time and money, which is why our process is built around your needs, not the lenders.
Don't believe it? Check out what some of our customers have to say about us!
Related: What is Loan Pronto?
Amazing service! Professional, helpful, responsive, and fast! I thought this refi was going to be stressful, as it has been in the past. However, to my surprise, it was nearly effortless. They didn't stall or ask for 1,000 things. It went really smoothly! They gave us a better rate and didn't change our monthly mortgage payment much at all! We'll be getting cash out to start our own business! I couldn't be happier. Harry and Katie...YOU GUYS ROCK! Thanks for a seamless process and for helping us to make our dreams come true.
Fastest and easiest refinance application ever. Everything was done online. There were no huge paper packets to read, file, sign, or shred. Everything was done through email or on their website, which was easy to navigate. They requested forms, I uploaded what they needed, they sent approvals for me to review and sign online, and now we're closing tonight in my kitchen. Easy, convenient, and there were no false promises made. We're paying nothing out of pocket. There was no appraisal. And the interest rate was locked in at 2.5%. Not too shabby!
Could not recommend Loan Pronto more! I was hesitant to do a refinance because I thought it was going to be confusing and a lot of work but Roger and Blaire made it so easy! They were able to reduce my rate by a full % point and lower my monthly payment by $200. I closed in less than 2 weeks and I got to skip a mortgage payment. They were super responsive and answered all my questions so quickly, too. If you're unsure about refinancing, definitely check them out. I'm so glad I did!
Use our free mortgage and amortization calculators to determine your monthly payment, including mortgage insurance, taxes, interest, and more.
To get started with the mortgage loan process, get a free rate quote or fill out our online loan application to get pre-approved!
