A new home in Philly Metro is one of the most exciting purchases you’ll ever make — which means that the more you understand the mortgage process, the more enjoyable your journey will be! A little bit of wisdom and planning goes a long way in helping you avoid costly mortgage mistakes, so take a look at a few of the big truths behind some of the most common mortgage myths:
Myth #1: Paying off a mortgage is more expensive than paying rent.
Renting a home can actually be more expensive than owning one. Homeownership may help you save significantly at tax time by deducting the mortgage interest, mortgage insurance, and property taxes you pay. Owning also builds equity over time that can be used to cover loans, and cash out refinances and lines of credit which can be used to improve your home and boost its value. Your mortgage payments may not be cheaper than rent in direct comparison, but over the long term, buying a home may have numerous financial benefits.
Myth #2: Once you pre-qualify, you’re all set.
Getting pre-approved for a mortgage may make you a more competitive buyer, but that doesn’t mean your mortgage-securing process is over. The prequalification process is simply to get an idea of how much you qualify to borrow based on your credit and debt-to-income ratio, but the bank will have a number of follow-up questions related to your financial and income situation. If you are self-employed or have a new job, you may have to supply additional information to combat any possible risks that may arise.
Myth #3: You should compare mortgages at the advertised rate.
Lenders advertise low interest rates but may make up for them with high fees. So comparing a 3.5% rate to a 3.6% rate isn’t as obvious a decision as it appears. Since most mortgages have fees, it’s important to compare APRs (annual percentage rates) from lenders’ truth-in-lending disclosure forms to see which mortgage really costs the least.
Myth #4: Your mortgage payment should be exactly 28% of your income.
It’s not realistic to simplify all the financial factors that go into this big of an investment into one standard percentage. What are your savings goals? Your other monthly spending? Any other debt you currently have? There are a number of mortgage calculator tools that banks and lenders provide in order to help you estimate what you can allot to your monthly payments.
Myth #5: You need to pay your mortgage off ASAP.
It seems sensible to prioritize paying off your mortgage. But compare the rate and it’s return on your money to other things you could be investing in, such as a retirement account with maybe a 6% or 8% earning over the long run. Credit card interest rates can even be 2 to 3 times higher than your mortgage interest rate, and aren’t tax deductible, so make sure you’re considering all your options when deciding where to spend your money.
Myth #6: Your credit score needs to be perfect.
Having a less-than-excellent credit score doesn’t mean you won’t be able to qualify for a mortgage! It’s true that the higher your score, the better your interest rate will be (anything above 670 is typically good), but each lender has its own minimum score, and considers additional factors when reviewing your financial situation as well. It’s a good idea to start gathering all the information you need and start working on raising your score now.
The more you know about the mortgage process, the better prepared you’ll be for what’s ahead — so you can enjoy the excitement that comes with buying a beautiful new Lennar home in Philly Metro!