If you’re like many people, it’s been a while since the last time you bought a home – and you may have never purchased a home before. Over the years, there have been some serious myths swirling around mortgages and what you need to do to get one, so it’s time to put them to rest before you dive headfirst into purchasing your next house.
3 Mortgage Myths That Need to Make a Permanent Exit
Though there are a number of misconceptions about mortgages, these are three of the worst:
- You need a 20 percent down payment
- Prequalification counts as much as preapproval
- A mortgage with the lowest interest rate is always the best choice
Let’s look at each in more detail.
Mortgage Myth #1: You Need a 20 Percent Down Payment
There are several loan products you can choose that don’t require a 20 percent down payment. In fact, you typically don’t need to have 20 percent down to buy a home.
However, you do need to be aware that your lender will most likely make you purchase private mortgage insurance, or PMI, if you don’t put down 20 percent. (There are some exceptions, such as when you purchase a home in Knoxville with a VA loan.)
Mortgage Myth #2: Prequalification Counts As Much As Preapproval
Prequalification and mortgage preapproval are two different things. And when you’re buying a home, preapproval is the one you want.
Prequalification is simply a lender saying, “Based on what we believe, you can apply for a mortgage with us. If what we believe is true, we’ll probably give you the money to buy a home.”
Preapproval requires you to submit financial documents for review. You’ll need tax forms, pay stubs, and income statements, as well as information about your assets and debts, to get preapproval. Your lender will review all this information, and if it preapproves you for a mortgage, it’s essentially saying, “If nothing significant changes, we’ll most likely approve you for a loan in the amount of $X.”
Related: Want to buy a FSBO? Read this first!
Mortgage Myth #3: A Mortgage With the Lowest Interest Rate is Always the Best choice
There are hundreds of loan products out there, and some have lower interest rates than others do – but that doesn’t mean the loan with the lowest interest rate is the best one for you. For example, if an adjustable-rate mortgage offers you the lowest interest rate but you’re not prepared to take the risk of your payments skyrocketing in a few years, that’s not the loan for you. Your best bet is to talk to multiple lenders to get a feel for all your options, and then decide based on your current financial situation (and your projected future financial situation).
Are You Buying a Home in Knoxville?
If you’re ready to buy a home in Knoxville, I’ll help you find one that’s perfect for your needs. Call me at 865-368-5150 now and let’s talk.
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