5 Commonly Asked Questions and Myths About Mortgages
The Austin real estate market is now picking up pace despite the significant impact that COVID-19 had on the nationwide economy and the real estate market in general.
Anyone familiar with the Austin real estate market trends understands why the city is one of the most preferred choices for real estate investments. It offers residents small city living with big city bonuses, a friendly atmosphere, lucrative employment opportunities, and top-notch educational facilities. Plus, it is currently experiencing a booming economy and high population growth rate, making it one of the best livable cities in the US.
Undoubtedly, the fastest-growing city offers ample benefits to residents. However, before making a move and investing in real estate, there are a few things homebuyers need to know about their mortgage before jumping into their search.
Read along to find out answers to 5 of the most commonly asked questions about home mortgages as well as some myths associated with them.
5 Common Questions First-Time Homebuyers Ask About Mortgages
FAQ 1: What is a Mortgage?
A mortgage is a home loan, where a lender is legally obliged to pay the total amount of the house under the pretext the borrower will pay them back along with interest in the defined period. The best part of a Mortgage is flexibility, as it allows you to buy a home even if you can not afford upfront costs.
FAQ 2: How to qualify for a mortgage?
To qualify for any mortgage, you (as a borrower) need to focus on three areas:
1. Credit Score: It indicates your creditworthiness, i.e., whether you will default on your loan payments or repay on time. Like other loans, you must maintain a good credit score to qualify for a mortgage.
(Expert Tip– Maintain a High Credit score to avail low-interest rates)
2. Down Payment: Although it’s not necessary, some loans may require you to pay some amount as a down payment.
3. Debt-to-income ratio: Debts should not consume a significant part of your income when you are about to incur a large amount of debt to buy your home.
FAQ 3: How do I get pre-approved?
At Austin Choice Realty, we have vetted out a list of local lenders who can help you get preapproved. This will be the first starting point in order to determine the budget you will need to stay within during your home search.
FAQ 4: How much downpayment do I need to pay for a mortgage?
As far as a downpayment is concerned, all lenders set a minimum amount as a criterion for loan application. Conventional loans for first-time home buyers require a downpayment of 3%, however many homeowners put down as much as 15-20%, which will lower their monthly mortgage payment.
FAQ 5: How long does it take to close a mortgage finally?
Closing indicates the transfer of property ownership rights. It is the last stage of the Mortgage. Usually, the process from application to loan funding takes around 30 days to close a home purchase deal.
5 Mortgage Myths That Could Waste You Time & Money
Applying for a mortgage involves several steps, from rounding up financial records to ensuring your credit score is in the best shape. Along with this, you also need to stay away from widely circulated misconceptions about Mortgages. These myths cost you time and money and may prevent you from buying your dream home.
Though there are plenty of myths, the following section covers the most common mortgage misconceptions which seriously affect buyers and real estate investors.
It's time to get the facts straight!
Myth 1: Interest rates are low; I must buy a home ASAP.
Many buyers make the mistake of purchasing a home at low-interest rates, thinking it results in low monthly payments and makes higher-priced properties affordable. The reality, however, is entirely different.
Undoubtedly, mortgage rates are currently the lowest compared to the last few years. But you can not let the mortgage rate FOMO trap you. It can end up becoming your biggest financial nightmare. Here’s why:
The real estate market is driven by the demand and supply principle. If mortgage rates are low, demand is high, which further increases the price of properties. Whereas, during times of high-interest rates, the need for houses plummets, further reducing the cost of properties.
One report estimates that prices of residential properties have been pushed up by 19% last year, which indicates buyers will be paying more for a lower-value property. Therefore, don’t buy an overpriced house just because rates are low.
Instead, follow the mortgage trends regularly or ask experts to assist you in analyzing the best time to buy the property. Additionally, even if rates are high, you have a better chance to reduce them later by refinancing the Mortgage, which may not happen in the case of 3 to 4% rates.
Hence, identify your goals, stay updated and check how financially prepared you are to take the giant leap.
Myth 2: Only a perfect credit score gets a mortgage.
Another thing that borrowers need to correct about mortgages is the criteria. They have a misconception that only a good credit score will help them qualify for the loan. However, that’s not the case.
Two other factors, i.e., Down Payment and Debt-to-income ratio, play a key role in helping you qualify for the loan. If you need more details, refer to FAQ 2 in the above section or contact us.
In short, you can fulfill the criteria even with a not-so-good credit score as low as 500 if you earn a handsome salary, have the required amount of savings, pay a good downpayment, and your debt-to-income ratio shows no worrisome signs. Maintaining a good pattern in all these categories assures the lender you will repay the loan despite the low credit score.
Myth 3: I can not afford a 20% down payment.
Not at all. Recent stats show that home buyers put down 12% on average this year, whereas the downpayment for first-time buyers was even lower at only 7%.
Indeed, a high down payment amount like 20% has perks, such as more equity and lower interest rates. In some cases, you can even avoid unnecessary expenses like Private Mortgage Insurance. However, only some are sitting with thousands of dollars.
Still, you need not worry as some lenders provide loans with a downpayment for as low as 3%, while few require no initial payments. Apart from these, you can consider local and state government-administered down payment assistance programs which include various funding options such as grants, 0% or low-interest mortgage rates, and even forgivable loans.
Myth 4: Opting for a 30-year fixed-rate mortgage is best.
If you believe a 30-year fixed rate is best, stop now. Even if 75% of borrowers choose this option, thinking low monthly payments are easier to pay, you don’t need to join the bandwagon without proper research.
Here’s why– when you select a short-term payment option, you can own your home right away.
Myth 5: Mortgage refinancing is useless.
Most borrowers consider mortgage applications a hassle. Mortgage refinance can turn out to be a better option.
As a matter of fact, lowering interest rates by even as little as 0.5 percentage points can help you save around $250-300 per month. If you round up the savings over a year, it totals a whopping estimate of $2000-3000. Other reasons you should consider refinancing– it helps in debt consolidation, reduces loan term, and allows you to cash out home equity as payment for repairs and fixes.
Spending a hefty amount in one go is bound to give you the blues. But with proper research, analysis, and expert support, you will choose the most convenient option that best fits your terms, needs, and budget. Hopefully, we have covered major queries here; however, if you still need help with houses for sale in Austin or find approximate mortgage estimates, either get in touch or use our tools like ‘Search’ and ‘Mortgage Calculator’. We will resolve all your doubts related to mortgage criteria, difficulties in the process, etc.
One search and you can find your dream home in minutes.