Mythbusting: Real Estate & Mortgages with Sam & Jill
Welcome back to another episode of Financially Naked: Stories from the Financial Gym. Our hosts are two Certified Trainers, Sam and Jill. Today, we're diving into real estate and mortgages and debunking some of the most common myths that often leave prospective homebuyers scratching their heads.
From navigating down payments to the debate of waiting for lower interest rates and even the importance of inspections, we're here to separate fact from fiction. In a world saturated with online information, it's easy to get lost in the noise. We're here to cut through the clutter and provide the facts you need to make informed decisions about buying a house.
Podcast Notes
Down Payment Myths
Myth: You only need enough money in your account to cover the down payment.
In addition to the down payment, other costs and fees are associated with closing on a house. The bank will expect a certain level of funds in your account to close.
For the down payment, you can use gift funds. There are specific rules about who those can come from, but they are a great option if available.
You want to ensure that you have savings for when you move into the house in case anything needs to be fixed shortly after you move in.
Myth: You need to have 20% of the down payment saved to buy a house.
Saving 20% of the price of a home is not an option for everyone. If you can, there are advantages, but it is not a requirement.
There are programs out there that allow you to put as little as 0 – 5% down. These can be a great option for many!
With less than 20% down, you may be required to pay private mortgage insurance (PMI). This will be added to your monthly mortgage payment. It is not a waste of money but rather a tool.
Mortgage, Debt and Credit Score Myths
Myth: You need to pay off all your debt before applying for a mortgage.
When applying for a mortgage, they're going to look at your debt-to-income ratio (DTI). This number includes all of your minimum monthly payments for your current debt and your future mortgage payment. If it's below 43%, you'll likely be approved.
Paying off your debt may lower your DTI but will take away from the amount of cash you have in the bank, which is important during the closing process.
Once you've started the process, don't make any other major purchases, take out new debt, or move large amounts of money around.
Myth: Applying for a mortgage will hurt my credit score.
Any time you apply for new credit, your score may take a minor hit. This is a normal part of the process and no reason for concern.
A mortgage broker can help you with this part of the process. They work with lenders and have more options than a traditional bank. You submit one application, and they do all of the shopping for you.
Myth: You need an 800 credit score to get the best rates.
Even if your credit isn't stellar, you can still buy a home. The better your score, the more options you'll have for better rates for the mortgage and PMI.
If you have a 680 or higher, you're in a solid position. Once you reach 780, the interest rates don't change much.
Pre-Approval, Inspections, & Interest Rates
Myth: If pre-approved, you'll definitely be approved for a mortgage.
Before shopping for a home, you'll want to get a pre-approval letter from a lender. A pre-approval determines the loan you qualify for based on certain financial information, generally including a soft credit check. They help you shop for homes in your budget.
Mortgage approval occurs after you've found a property and entered into a purchase agreement. Your lender will thoroughly review your financial documents and information to finalize the loan terms.
A pre-approval is not a guarantee for final approval, but it helps. That letter helps you shop confidently and understand the maximum you can afford.
Myth: You need to wait until the interest rates are lower before buying
There are both advantages and disadvantages to waiting until the rates are lower. If you truly want to buy a home or find one you love, you don't have to wait for rates to change before moving forward.
If you buy a home and rates go down later, you can always refinance the loan to take advantage of the lower rates.
If you wait, there may be more competition from other buyers, which can drive the prices of the homes up overall. You may get a better deal on the actual home when the rates aren't the best.
If you want to work with a Certified Financial Trainer to help navigate your finances or plan to buy a home, schedule a free warm-up call today! If you have any ideas or questions for the show, send an email to trainerpodcast@fingyms.com.
Resources
Meet The Trainers
Meet Sam Cash, Certified Financial Trainer
Meet Jill Wagner, Certified Financial Trainer, Licensed Mortgage Broker
Company name: Mortgage Trust (and/or Mortgage T in AL, FL, MN, NC, SD, TX, and UT)
Company license number: NMLS 3250
Loan officer name: Jill Wagner
Loan originator license number: 2479786