Common Mortgage Myths Vs Truths

If you plan to buy a home, you may have scrolled through social media, checked online forums, or consulted people in your network about their experience, and it's more than likely that you've come across some myths and incorrect information about the process. Concerns on topics ranging from credit scores and down payments to pre-approvals and closing costs will arise, and many common expectations or “rules” for these processes are not entirely true.

Homebuying and mortgage myths have the power to discourage homebuyers from fulfilling their goals of homeownership or misinform important financial decisions. In reality, the homebuying process often involves more options and flexibility than some are aware of, which is why it's important to separate fact from fiction ahead of any important financial decisions.

Myth 1: Once Your Offer Is Accepted, the Deal Is Done

An offer acceptance is just the beginning of the closing process and when many buyers begin the mortgage application and underwriting process. When the seller accepts, this is the time to deposit earnest money into the escrow account as a good-faith commitment to the lender. Then, you'll establish proof of funds to get the loan approved.

From here, the home is inspected, and some buyers opt for an appraisal to confirm the property value based on its condition. A title company will then review the property's history for any unpaid debts or encumbrances. At this point, for those who chose to do so, buyers will secure homeownership insurance and utilities, review their closing disclosure, and complete the final walkthrough before closing is finalized .

Myth 2: You Should Find a Home Before Applying for a Loan

While this is partially true, it's recommended to begin weighing different mortgage options before your offer is accepted to avoid making a rushed decision. In fact, we recommend completing the mortgage prequalification or preapproval process before you begin searching for a home. Taking this step can help you understand what you can afford in a home and determine the best loan option for you. This can make your loan application more attractive to sellers, giving them the confidence that you'll be able to afford the property and that your application will be approved. While a preapproval is more involved, you can get an initial estimate with a simple prequalification. If you're ready to take this step, get prequalified with Freedom Mortgage online today .*

Myth 3: Spring Is the Ideal Season to Buy

There are certainly some upsides to purchasing property during warmer months. The spring season often brings more listings to the market, and similarly, more open houses for potential buyers to see properties in person. Additionally, house-hunting and moving during the colder months just isn't always ideal, especially if you live in a region that experiences rough winters.

However, in the colder seasons, buyers will find that homes are more attractively priced, given that there are usually fewer buyers looking for homes during these months. Many agents even say the holiday season is among the best times of year to make offers on homes, because most buyers tend to take this time off from house-hunting. Generally, colder months tend to foster less competitive local market conditions, and you're more likely to come across sellers looking to sell properties before the end of the year for tax purposes.

Myth 4: Always Choose a Mortgage with the Best Interest Rate

Future homebuyers should consider all contributing factors, not just interest rates, before choosing a home. First, it's best to carefully select the type of mortgage loan that suits you best. When choosing a mortgage, be sure to take its annual percentage rate (APR) into account and compare it to the property's mortgage rate. Buyers will also benefit from considering their mortgage term, the period during which they choose to pay off the loan. Whether you select a 15, 20, or 30-year mortgage, these terms will affect interest rates and the monthly payment you'll pay over the lifetime of the loan.

Interest payments are just one component of the overall cost of financing a home. Borrowing costs may vary depending on other contributing factors. Some potential homeowners may have to pay lending fees or private mortgage insurance, impacting the overall financial responsibility of buyers. Finally, be sure to check your credit score before committing to a property, as this can help determine if you qualify for a mortgage to begin with.

Myth 5: Buying Private Mortgage Insurance Means Throwing Money Away

Paying for private mortgage insurance (PMI) doesn't mean you're wasting money. PMI is a resource that makes homeownership more accessible for those who don't or can't put 20% down on conventional loans. PMI protects lenders, not buyers, particularly if buyers don't make their monthly mortgage payments. PMI allows future homeowners to qualify for conventional loans, even if they have less upfront cash on hand.

The price of PMI can range anywhere from 0.2% to 2%, depending on credit score, loan size, and downpayment. Insurance is usually paid monthly, although some loans allow buyers to pay for their PMI as a lump sum or an upfront premium. PMI, however, can be temporary. Buyers can request cancellation once their home equity reaches 20%.

Myth 6: Newly Built Homes Are Maintenance-Free

Newly built homes have their own unique set of expenses that may differ from those of older properties, but this does not mean they are maintenance-free. These include expenses related to HVAC systems, home appliances, water heating and plumbing, and electrical systems, all of which can be covered with the help of a home warranty if not already covered by a manufacturer's warranty, which can vary in price.

Home inspections can also help homeowners identify any initial repairs that may be needed, which have their own respective fees, and as for any home, newly-built properties require regular, ongoing maintenance to keep everything functioning properly.

Myth 7: Getting Preapproved Hurts Your Credit

Preapproval is a critical part of the purchase process that tells homebuyers how much they'll be able to borrow based on their financial profile. This step does not guarantee a loan, but it does help buyers create a clear and realistic budget. Mortgage lenders are usually the party running a credit check during the preapproval process, and the impact this inquiry has on your credit is temporary . According to FICO, these hard credit checks can lower your credit score by less than five points in most cases, but those who face this minor credit dip take part in a smart step that helps them shop for homes with increased confidence.

Final Thoughts

Homebuyers are expected to remember a lot of information, and these mortgage myths and common misconceptions can make the process seem intimidating, but homeownership is not just reserved for people with perfect credit scores and endless savings. With the right information, buying a home can be attainable as homebuyers better understand the flexibility that can exist throughout the process.

The more informed you are, the more empowered you'll be to make the best financial decisions for you and approach homeownership with the clarity that allows you to achieve your long-term goals.

*This is not a commitment to lend. Application required and subject to underwriting approval and collateral requirements. Full documentation required. Not all applicants will be approved. Loan secured by a lien against your property. Terms, conditions and restrictions apply. Fees and charges apply and may vary by state, product, and loan amount. Interest rates are subject to change without notice. If you do not lock in a rate when you apply, that rate may not be available at loan commitment, lock-in or closing. Additional payments of taxes & property insurance are required. By refinancing, the total finance charges may be higher over the life of the loan. Important information relating specifically to your loan will be contained in the loan documents, which alone will establish your rights and obligations under the loan plan.