Watch out for these mortgage myths when buying real estate

By Michelle Grossman | October 18, 2018

Acquiring a mortgage can feel like breezing through a purchase or undertaking a long, tiring process. All depends on your understanding of the process. In this article, we’ll help you get organized and set your expectations the right way by checking out some of the most common mortgage misconceptions.

Let’s get to it.

Lenders only look out for the best credit scores

Say you’re applying for a mortgage with a co-borrower, you would think that the lender would only consider the highest credit score between the two of you. Lenders, however, take the middle of three credit scores for borrowers, and then make use of the lowest score between both the borrowers’ “middle scores.”

Therefore, if you had a middle score of 780 while your co-borrower had a middle score of 660, the majority of the lenders would only qualify and approve you with 660 credit score.

Because rates are tied to credit scores, your rate would be based on the 660 credit score, which can boost your rate — or make you unqualified for the loan.

The rare exception is if you have the higher credit score and the higher earner as well, many lenders will use your higher credit score— but this is mostly for big loans above $417,000.

The quoted rate you’re given is the one you’ll get

The original rate you’re quoted can change unless you’re locking in a rate at the moment it’s quoted. Rates are based on daily trading of mortgage bonds, so rates change throughout each day for most lenders.

Take note that refinancers can typically lock a rate when it’s quoted if you’ve given your lender all the necessary information and documentation to know if you qualify for the quoted rate.

A quote is usually given as you start your pre-approval process, but rate locks run with a borrower and a property. Therefore, unless you see a home you want to buy, you can’t lock your rate. While home shopping, rates can also change daily, so you must have updated quotes as you keep home shopping.

You should always get fixed-rate mortgages and not adjustable-rate mortgages

Many borrowers started opting for 30-year fixed loans after the 2008 financial crisis. This is because the rate and payment on a 30-year fixed loan cannot be altered. However, longer loan duration means a higher rate. Now before choosing a 30-year fixed, see how long you’re going to keep this home and the loan.

It doesn’t matter for an agent what lender you use

Real estate agents who will represent you as a buyer cares which lender you use. Typically, they’ll suggest using a local lender who’s already familiar with your area’s nuances, like local taxation rules, appraisal methodologies and settlement procedures.

These are part of the loan process and can cause delay or stumped deals if a lender isn’t experienced enough to process them. Real estate agents who represent sellers on homes you’re interested in typically prioritises purchase offers based loan approval’s quality. Local leaders who are respected by agents will give your purchase offers more credibility.

Paying less than 20 per cent down always require a mortgage insurance

Mortgage insurance is a lender-risk premium for home loans when less than 20 per cent down is offered. This means a higher total monthly housing cost. However, it’s possible to buy a home with less than 20 per cent down and avoid mortgage insurance.

You can do this by a combination first and second mortgage aka a piggyback where the first mortgage is capped at 80 per cent of the home’s value while the second mortgage is for the balance of what you’re looking to finance.

Buying the right home in a good community

Let’s say that you’re keen to purchase a real estate property this Fall – which neighbourhoods are you eyeing? Learning the misconceptions only matter if you acquire the right investment in a good neighbourhood at the right price.

If you’re looking for your family’s next home or a second property for investment, check out the real estate properties in Melton South, Victoria, particularly in Atherstone. Perfectly positioned just 40kms west of Melbourne CBD, it could be the right investment you’re looking for. Check it out.

There you have it! Don’t forget to keep researching mortgage rates and news before locking into a property or lender. Best of luck!