By Charity Ohlund
The mortgage industry isn’t exactly known for being easy to understand. Between all the regulations, guidelines, and available products, it’s quite easy to be misinformed. Add the Internet to the mix (everything is true on the Internet, right?) and you’ve got a perfect storm for wrong information.
That’s where we come in. We are a local team of dedicated and passionate mortgage professionals who are motivated to truly serve and inform our Kansas City neighbors, friends, and clients so that they (and you) don’t fall for the common mortgage myths.
Let’s break some of those myths down for you.
While 20 percent is beneficial as it allows you to avoid having to pay mortgage insurance, it’s not required. In fact, most down payments on home purchases average between 5 and 10 percent. FHA and VA loans allow buyers to put down just 3 percent.
Depending on your credit score, mortgage insurance can be inexpensive. Mortgage insurance exists for a reason; to allow buyers to put down smaller down payments. The tradeoff of waiting until you have saved 20 percent to make a purchase probably isn’t worth it as that time delay could cause you to miss the low-interest-rate boat.
A super awesome credit score is super awesome, but it’s not needed. Conforming loans allow for scores all the way down to 620 and government loans (FHA, VA and USDA) allow scores to be as low as 580, and in some cases, lower. Yes, it’s true that a lower score generally means higher rates, but the incremental increase is much less than you’d think, as long as you are working with a reputable mortgage company. Unfortunately, there are places that take advantage of lower-score borrowers, so make sure you are working with the right person or company.
The percentage of income needed to afford the median rent is 30 percent compared to 20 percent of income needed to afford owning a median home. That’s significant. We’ve posted before about rising rent costs and how rent payments would otherwise correspond to home buying power. It’s true that renting saves money on home repairs. But even when repairs are taken into account, owning is still cheaper than renting. Plus, many repairs can be covered by home warranties that home buyers purchase and renew each year.
The skyrocketing amount of student loan debt is no myth. But we’ve talked to dozens of borrowers who initially thought that the mere fact that they had student loan debt would prevent them from qualifying for a home loan. In recent years, lending guidelines have changed how we look at student debt. Instead of counting the entire balance of the student loan in the “debt” category, guidelines now allow lenders to count the minimum monthly payment amount or 1 percent of the full loan balance. For example, your debt-to-income ratio (DTI) is calculated by taking your minimum monthly payments on car loans, credit cards, real estate loans, and student loans and dividing it by your gross monthly income (before taxes or benefits are deducted).
You’d be surprised at how much clarity you can find (and how much time and money you can save) when you talk to the right loan professional. The amount of fake mortgage news is enormous. However, making a 20-minute call to a local expert is a powerful way to learn more about your situation. Connect with our team at Fountain Mortgage to set up a free consultation.
This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268