While purchasing a home is an incredibly exciting time, many potential homeowners find themselves experiencing a great deal of fear and apprehension due to the sheer amount of mortgage myths out there.

Getting qualified for a mortgage is the first step to homeownership, and you may feel like getting qualified is difficult or potentially out of reach. Morgan Financial is here to help put your minds at ease and debunk these all-too-common mortgage myths.

Myth #1: Prequalification and preapproval are the same thing.

Reality: False.

Prequalification and preapproval are two very different things. Prequalification is simply the first step and is typically only a discussion between the borrower and the lender to help determine what they may or may not qualify for. There is usually no exchange of documentation and only serves to give the borrower a better idea of what they can afford.

On the other hand, preapproval is more official and holds far more weight. When a borrow has been preapproved, they have had their income, assets, and credit verified by the lender. This paints a much better picture and allows the lender to confidently back a borrower. Furthermore, a seller will often take the bid of a preapproved borrower much more seriously than perhaps other potential buyers who have not been preapproved by a qualified lender.

Myth #2: I have too much debt to qualify for a loan.

Reality: Probably not.

Between car loans, student loans, and a few credit cards, it can be easy to feel like you may have too much debt to qualify for a mortgage. This is not necessarily true, and the best way to figure out how much debt you can afford to carry is to calculate your debt-to-income ratio, or DTI.

Calculating your DTI is simple. Simply add up your recurring monthly debt obligations such as a car payment, minimum credit card payments, student loan payment, and anything else that you are required to pay on a monthly basis. Take your total and divide that by your gross monthly income, or your income before taxes. The resulting number is your DTI.

A lender will take this number and factor in your potential mortgage payment. With that in mind, it is best to keep your monthly debt payments less than 45% of your gross income.

Myth #3: I need at least a 20% down payment to qualify for a loan.

Reality: Absolutely not.

People hear all too often that 20% down is the magic number and the only way a lender is going to approve you for a mortgage, however that is not even remotely the case in this day and age. While a 20% down payment certainly makes a difference and allows you to avoid paying mortgage insurance, it’s not the minimum amount required in order to get a good mortgage.

Most conventional loans actually only require a minimum of 5% down, and other loans such as those guaranteed by the Department of Veteran Affairs, or VA loans, may not require a down payment at all.

Myth #4: I need excellent credit to get a mortgage.

Reality: Nope.

Your first step before shopping for a mortgage should indeed be reviewing your credit score, however a less-than-excellent score probably won’t prevent you from getting a mortgage.

According to Credit.com, credit scores are typically considered like so:

Excellent: 750 and above

Good: 700 to 749

Fair: 650 to 699

Poor: 600 to 649

Very Poor: Below 600

While of course having excellent credit qualifies you for the best rates, you can still often qualify for competitive mortgage rates with a good or even fair credit score.

Myth #5: The down payment needs to be 100% out of my own pocket.

Reality: No way.

If you’re lucky enough to have generous friends or relatives that are willing to help you with a down payment, then that is most certainly an option. This is an especially common question among younger, first-time homebuyers who may be receiving help from parents or relatives.

Most loan types allow for cash gifts including VA, conventional, even on some jumbo loans. However, there are some rules and protocol to follow when it comes to receiving down payment gifts. You can read about some of the Fannie Mae requirements,  or you can make a point to discuss this with your loan officer.

Myth #6: As long as I am financially sound, I am guaranteed to qualify for a loan.

Reality: Maybe not.

In some cases, you may be an excellent prospective buyer and perfectly qualified for a great mortgage with the best rates. However, in certain cases, the property itself can be a factor and not allow for the mortgage to be approved.

A perfect example of this situation is when a borrower is looking to purchase a condo. There can sometimes be different and more complicated rules when it comes to certain factors including but not limited to quality of the structures, age of the property, and insurance requirements. These are things that your loan officer will help figure out, however it’s something that a borrower should certainly keep in mind as they shop for a home.

Takeaway

When you know the facts, getting qualified for a mortgage doesn’t seem so far out of reach. Furthermore, we’ve made it easy for you to get started with a loan officer and find out very quickly exactly what you qualify for. You can fill out our online application here or simply pick up the phone and give us a call today!