5 Common Mortgage Myths Debunked

If you’re thinking about getting a mortgage for the first time, you might have been subject to some misinformation about the whole process. Fortunately, it’s the Digital Age and you can go online and learn what you need to know about getting a loan before you start spending your Sundays going to open houses.

Here are 5 common mortgage myths debunked.

1. Pre-Qualified Is Not Pre-Approved

If you get pre-qualified for a certain loan amount, you might be tempted to think to yourself that you can definitely get that amount. As a result, you might go shopping for a house that’s at the upper end of your pre-qualification figure.

However, pre-qualification isn’t the same thing as pre-approval. When you get pre-qualified, the lender is essentially accepting the honor system when you provide information about your financial picture. When it comes time to actually get approved for the loan, the lender will dig deeper into your background as a borrower and the current state of your finances.

In short, you might not actually be qualified for the pre-qualification amount. Make sure you shop for a house accordingly.

2. Thirty-Year, Fixed-Rate Mortgages Are Best

You might know a self-described financial expert who’s assured you that 30-year, fixed-rate mortgages are absolutely the best option. The reality is that sometimes they are the best option and sometimes they’re not.

As a rule of thumb, 30-year fixed rate mortgages are the best option if you think long-term interest rates are about to rise. However, if long-term rates are already high and you think that they’re about to drop, it’s usually best to get an adjustable rate mortgage (ARM).

A 30-year fixed rate mortgage might also not be idea for you if you only plan on owning this property for a few years.  If this isn’t your forever home, then consider saving money with a lower interest rate that a five or seven year ARM could offer.

Use your spreadsheet to calculate mortgage rates and learn how much you stand to save or lose based on whether interest rates rise or fall if you get a fixed-rate mortgage versus an adjustable-rate mortgage.

3. It’s Better to Rent If You Want to Save Money

Another myth that gets bandied about way too frequently is the notion that you can save money if you rent a place versus owning your home.

No. You can’t.

Why? Because you don’t build equity when you rent. Also, you’re not entitled to a mortgage tax deduction that helps you when it comes time to pay your taxes.

In the long run, if you want to build wealth, it’s much better to own your own home.

4. You Should Pay off Your Mortgage As Quickly As Possible

Although you might think that it’s always a great idea to get out of debt as quickly as possible, that doesn’t mean you should do everything you can to pay off your mortgage quickly.

Why? Because it only makes sense to free up the cash that you’re using for your mortgage if you can do something better with it than put it into real estate that tends to appreciate in value.

5. You Can’t Get a Mortgage Unless You Have a 20% Down Payment

You don’t need a 20% down payment to get a mortgage these days. Some lenders will let you get a mortgage for as little as a 5% down payment. You might pay a slightly higher rate, but you’ll still get the loan.

When you’re ready to buy a home, you’re probably going to need a mortgage. Make sure that you don’t fall for common mortgage myths as you’re shopping for a house.