Mortgage Lenders in Annapolis: Common Myths Debunked

Brokers

Taking out a mortgage might seem like a complex process to someone who is not educated in the field. This lack of knowledge has led to misconceptions and myths becoming common in the mortgage conversation. While taking on a mortgage is a major undertaking, the process is far from a daunting one. The housing market follows trends and is constantly changing, making the myths stray even farther from the truth as time goes on. Gaining an understanding and discrediting the common misconceptions paints an accurate picture of what the mortgage process actually is. Here are common myths debunked from mortgage lenders in Annapolis.

1. Pre-Qualified and Pre-Approval are One and the Same

Mortgage brokers in Betheda using pen to for client to sign document.

Pre-qualification is a simple questionnaire meant to initiate the lending process while a pre-approval is an in-depth look into your financial situation and your ability to repay a loan on a home. When applying for a loan, the majority of lenders will prefer a pre-approval as it is a more comprehensive look at your financial profile as opposed to a pre-qualification, which is a more general look at your ability to afford the house. Pre-qualification means you qualify for approval and a pre-approval means you have already been approved for a certain amount. Mortgage lenders in Annapolis differentiate on what they prefer so be sure to inquire.  

2. Lender Shopping Hurts Your Credit Score

Shopping around for different Annapolis mortgage lenders is a crucial step to finding the best interest rates available. Multiple inquiries about your credit score do negatively affect it, however, FICO allows 30 days for all inquiries to be counted as one but it is suggested that you do all inquiries within 2 weeks. Securing the best rate is highly recommended when taking out a mortgage.

3. Renting is Cheaper Than a Mortgage

It is a common misconception that renting is cheaper than a mortgage. In reality, paying rent is merely more simple by comparison as it only requires a monthly payment but when you consider where the money goes, a mortgage is a much better financial option. Paying a mortgage grants the eventual ownership of a home while renting goes straight into the pockets of the landlord. A mortgage is an investment as opposed to rent which is just an expenditure.

4. You Should Spend as Much as you are Qualified to Borrow

Just because you get approved by an Annapolis mortgage lender for a loan does not mean that it is the ideal amount for you. When considering affordability, try to find a monthly payment that compliments your overall financial status and goals. Only take on an expense that you are comfortable paying every month for 15-30 years.

5. A 20% Down Payment is Required

While it is true that a 20% down payment will grant you lower interest rates, start with more equity and avoid paying for private mortgage insurance, it is not required. In fact, the average homebuyer put only 12% on average this year. There are down payment assistance options available from state and federal government programs that offer a down payment loan with low-interest rates. USDA and VA loans don’t require any down payments. If you have a credit score over 580, then you qualify for an FHA loan at only a 3.5% down payment. 

6. Perfect Credit is Required for a Mortgage

Perfect credit grants a homeowner better mortgage terms but perfect and even good credit is not required to take out a mortgage loan. As with down payments, options exist for those with poor credit. Credits as low as 500 can apply for FHA loans and VA loans require a credit of 580 to 660. Apart from your credit score, mortgage lenders in Annapolis will look at your debt to income ratio or D.T.I. Most lenders will typically prefer a D.T.I where the cost of the mortgage is no more than 36% of your total debt. 

7. Find a House First and Then Consider the Mortgage

A common mistake in purchasing a home is finding the home you want and then considering the mortgage. Chances are if you find your home and have not started the mortgage process, it will be sold while you are dealing with the mortgage. Avoid this by getting pre-approved before you begin looking for a house. A pre-approval works as a guarantee that you will be able to fund the purchase by way of a loan as well as give you an idea of what you will be able to afford. 

8. A 30-year Fixed-rate Mortgage is Always the Best Option

By far, the most popular mortgage option is the 30-year fixed-rate mortgage. Over 75% of buyers chose this option. It may make sense for a variety of individuals to choose the 30-year fixed-rate, however, other options exist that should be considered. A mortgage plan should be chosen based on the buyer’s financial situation and goals. If one can afford higher monthly payments, a 15-year fixed-rate mortgage can allow buyers to own their home sooner and for less money overall. Discuss all of your available options with your Annapolis mortgage lender in order to pick the best fit for you. 

9. The Down Payment is the Only Upfront Cost

When purchasing a home, coming up with a down payment is a major expense of the mortgage process but it is often forgotten that there are other costs that must be accounted for when initially taking on a mortgage. Closing costs include all of the changes necessary to process the transactions which typically add up to 1-2% of the sale price. 

10. Refinancing is Not Worth the Inconvenience

Many people do not understand the benefits that come with refinancing and instead only consider the burden of paperwork that comes with the application process. Refinancing can assist in consolidating debt, cashing out on equity, and even reducing your loan term. Refinancing is an incredible asset in the pocket of the homeowner and should be used accordingly.

11. Pre-Paying a Mortgage Comes With a Fee

The fees that come with pre-paying a mortgage differ between Annapolis mortgage lenders. A majority of lenders don’t charge a fee for prepayment and those that do typically only charge a fee during the first 3-5 years after closing. Pre-paying a mortgage can save thousands of dollars so it is important to discuss what the lender’s terms are before closing. 

12. You Cannot Be in Debt and Purchase a Home

Being in debt does not mean that you cannot purchase a home. Much more important and revealing is the debt to income ratio. Annapolis mortgage lenders will still approve a loan to someone in debt so long as their income outweighs the debt. Typically, lenders prefer that your D.T.I ratio is less than 36%, with no more than 28% going towards paying the mortgage.  This shows that the individual is making an income at a higher rate than their debt thus proving your ability to pay the debt effectively. 

Work With Expert Mortgage Lenders in Annapolis

The common myths attached to mortgage lending result in costly decision-making. Debunking these myths is extremely important due to the fact that they are costing people thousands of dollars. Choosing a mortgage lending plan should be based on your individual financial situation. Formulating this mortgage plan requires someone in your corner with expertise and knowledge. When you’re looking for an Annapolis mortgage lender that retains your best interest, look no further than Federal Hill Mortgage. Contact us today to begin formulating a mortgage plan custom-tailored to fit your individual financial situation!

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Federal Hill Mortgage

The Federal Hill Mortgage Team is here to supply you with all the information you need to shop for a mortgage that's right for you.