Todays mortgage myths…
Pre-qualification vs Pre-approval
Though the terms may look and sound similar. Some people use the terms interchangeably, but there are some differences that every homebuyer should understand. By answering several questions about your current financial situation, you can get pre-qualified which is based on consumer-submitted data. This means that your current financial situation is suitable for a loan. Sellers sometimes requests a pre-approval over a pre-qualification, which involves credit check, completing a loan application and providing supporting documentations. This process also will determine the max loan amount you can qualify for.
Lenders and your credit score
It is true that multiple inquiries on your credit can lower your credit score. However, FICO allows all of the inquiries made within a “window” period to be considered 1 inquiry. This means that the multiple inquiries during the window period is considered as one inquiry. If you have a really clean credit report, one inquiry may not have any impact. If an inquiry is going to affect the scores it’s usually not more then a few points, possibly 10 at the most.
Debt and home-buying
Many people think that it’s a bad idea to buy a home while in debt, and that the debt will somehow inhibit them from being able to purchase their house. Though the latter part is partly true, because of the sheer amount of people with student loans and car payments, expecting to get a loan with no debt whatsoever is not only difficult, but also unrealistic. When a lender looks at your credit score while you’re in debt, they also look at something called the debt-to-income ratio, a ratio that is the result of your monthly debts divided by your monthly income. The cutoff for the resulting number is usually at around 45%.
Upfront costs
While your down payment is one of the most important upfront payments you’ll have to make, it is definitely not the only one. For example, there’s also closing costs to keep in mind. As a sum of all of the fees that are necessary to facilitate the transaction, the closing costs usually add up to 1 or 2% of the total sale price. Also, oftentimes the closing costs are split between the seller and buyer. If you can’t afford the closing costs, you can always ask the seller to cover for you. This will result in your portion of the closing costs being added to the mortgage’s monthly payments.
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