Dwelling shopping for is often an thrilling however disturbing interval for residence consumers, particularly anxious first-time homebuyers involved with making pricey errors or not getting the perfect deal.
While you add a mortgage into the equation, prospects are certain to strategy the home-buying course of with lots of angst and considerations that you could be have to ease earlier than you will get their signature on these closing papers.
Listed here are 14 widespread mortgage misconceptions you will have to elucidate to prospects earlier than you may shut that deal:
1. You all the time want a deposit of 10% or extra
The web is stuffed with blogs, articles, and movies telling first-time residence consumers that they want a deposit of 10% or extra to qualify for a mortgage for his or her dream residence.
This recommendation is likely to be off-putting, particularly for prospects who don’t have sufficient to cowl the ten% down fee, closing prices, and shifting bills. Luckily, this isn’t all the time the case, and never each mortgage firm asks for a ten% down fee.
For instance, you may clarify to first-time homebuyers that they’ll use SoFi mortgage mortgage choices to get a mortgage with a down fee as little as 3%. Explaining this to anxious first-time residence consumers can ease their fears and make it simpler to get to the closing a part of the mortgage course of.
2. It’s a must to have an ideal credit score rating
An ideal credit score rating will not be a prerequisite for a mortgage mortgage approval. Nonetheless, that’s not to say that having good credit score doesn’t matter as a result of the upper a prospect’s credit score rating, the higher the mortgage phrases. Nonetheless, an ideal credit score rating will not be necessary for a mortgage, particularly for first-time residence consumers who can use numerous choices at their disposal.
For instance, you may clarify to potentials who don’t qualify for a standard mortgage due to not having a superb credit score rating that they’ll take into account different choices like Federal Housing Administration loans. This mortgage sort asks for a 3.5% deposit and a credit score rating as little as 580 factors. With the next deposit, prospects with 500 factors on their credit score rating can get a mortgage possibility.
3. It’s a must to be debt free to qualify
Most individuals have one or two loans, typically a pupil mortgage, a automotive mortgage, or a credit score or debit card mortgage. Sadly, most individuals assume that having these loans robotically disqualifies them from a mortgage mortgage, which is barely true among the time.
Basically, lenders take a look at a borrower’s potential to afford the brand new mortgage whereas maintaining with present funds. They should set up that including an additional obligation gained’t end in monetary pressure, rising the chance of default.
Clarify to your prospects that mortgage lenders often take into account the Debt-to-Earnings (DTI) ratio by summing up all month-to-month bills and dividing that by the overall earnings.
4. You want a 2-year work historical past
Sure, most lenders require a piece historical past of as much as 2 years. Nonetheless, this isn’t an ordinary throughout the board. Some lenders depend your schooling as a piece historical past.
For instance, a school graduate who lands a well-paying job proper out of faculty and intends to make use of that earnings to purchase a house can achieve this. That’s as a result of the schooling and time wanted to get that job depend as a part of your work historical past on this regard.
5. You may’t pay your mortgage off early with out paying a penalty
Not too way back, paying off your mortgage early attracted a prepayment penalty as a result of it meant mortgage lenders wouldn’t earn the curiosity on the principal quantity for the agreed interval.
Luckily, that’s not the case as a result of most lenders don’t cost these penalties anymore. Those that do solely levy the price through the first 3-5 years after closing. In the present day, paying off a mortgage mortgage early is an effective factor.
6: Pre-qualified is similar as pre-approved
Most prospects go into the mortgage course of assuming that pre-qualification and pre-approval imply the identical factor. This false impression is comprehensible as a result of each processes have letters that deliver prospects nearer to their dream residence. Nonetheless, pre-qualification and pre-approval are totally different, and you will have to elucidate these variations to prospects.
Clarify to prospecting mortgage shoppers {that a} pre-qualification letter signifies the potentiality of qualifying for a pre-stated mortgage mortgage, however provided that the data on file —maybe from a credit score report— seems correct through the pre-approval stage.
Alternatively, mortgagees ship prospects a pre-approval letter after totally assessing a mortgagor’s monetary historical past, work expertise, and credit score rating and figuring out that they qualify for the pre-qualified mortgage mortgage. The pre-approval signifies a mortgage lender’s readiness to supply the mortgage, and the letter is often legitimate for 60 days.
Explaining this distinction to a prospect can get rid of friction and dissatisfaction with the mortgage course of.
7: An extended-term, 30+ years mortgage is all the time the perfect
When selecting a mortgage reimbursement plan, many individuals typically assume that choosing the longest time period is of their greatest curiosity and the one method to go. This false impression is comprehensible, no less than from a shopper’s perspective: longer-term mortgages often have decrease preliminary month-to-month funds.
Nonetheless, whereas most mortgage lenders and banks can lend for 30 years, clarify to your prospects that these mortgages typically price extra in the long term due to greater rates of interest. Thus, if a shopper can afford a shorter-term mortgage however is contemplating a longer-term mortgage, it’s best to elucidate some great benefits of each choices to make sure your shopper could make an knowledgeable selection.
8: Adjustable-rate mortgages (ARM) are a nasty deal
The fixed-rate mortgage is the normal and most most well-liked possibility as a result of regardless of the size of the mortgage, the month-to-month fee stays mounted all through the mortgage time period. Thus, most individuals assume that ARM mortgages are a nasty deal, particularly after “The Monetary Disaster Inquiry Report” indicated that these mortgages could have been a precursor to the 2008 housing disaster that left many homeless. Nonetheless, whereas ARMs could have downsides, in addition they have notable advantages.
For instance, you may clarify to prospects that ARMs have a set interval of three, 5, and seven years the place the rate of interest stays the identical. After this length, there’s a cap on how excessive the rate of interest can go.
As a result of ARMs don’t favor everybody, clarify to your prospects that this feature is good for short-term householders. For instance, homebuyers who need to flip the property or intend to maneuver can profit from this feature because the preliminary charges are decrease than fixed-rate mortgages.
9: Too many mortgage lenders making credit score rating inquiries can decrease credit score rating
Most individuals draw back from rate-hunting as a result of they consider having too many credit score inquiries hurts their credit score rating. Whereas that’s true for auto loans and bank cards, the identical doesn’t apply to a mortgage mortgage.
Level out to prospecting shoppers that whereas too many arduous credit score rating inquiries can have an effect on their credit score rating, it solely lowers their creditworthiness by 5-10 factors. After that preliminary inquiry, they’ve a 45-days rate-shopping window the place related arduous credit score rating inquiries shouldn’t have an effect on their credit score rating.
10: A one-time mortgage denial means no future approvals
Some individuals are fortunate sufficient to qualify for a mortgage on the primary utility; others are usually not as fortunate.
Sadly, that scares many prospects who consider that when one mortgage lender denies their mortgage utility, it means no different lender will approve them sooner or later, which isn’t the case.
It is very important clarify to your prospects that even when they don’t qualify for a mortgage mortgage this time, they’ll all the time work towards qualifying for a mortgage that helps them afford their dream home. For instance, you may advise prospects to repay debt and payments on time and make the most of their credit score higher.
11: You want escrows to your mortgage
Householders who don’t like dealing with property insurance coverage and taxes arrange escrow accounts with their mortgage lenders, then remit an extra sum every month to make sure that, come year-end, the lender can use these funds to settle these payments.
Whereas escrow accounts are a handy method to deal with property insurance coverage and taxes, they aren’t necessary, and it’s best to clarify to prospecting shoppers that in the event that they don’t need an escrow, they don’t have to have one.
12: All mortgage firms use the identical approval tips
Most homebuyers assume that every one mortgage lenders have related SOPs. Thus, they mistakenly assume that not assembly the necessities of 1 lender usually disqualifies them from a mortgage elsewhere. This widespread false impression is fake as a result of mortgagees use totally different guidelines to pre-qualify and pre-approve potentials.
It’s necessary to elucidate your agency’s pre-qualification and pre-approval standards to potential mortgage shoppers to assist them put together all the data they should present to enhance their probabilities of getting authorized for a mortgage.
In addition to being good follow, guaranteeing potential homebuyers really feel supported all through the mortgage course of is nice for enterprise.
13: It is best to discover a residence earlier than making use of for a mortgage
This is among the most deceptive misconceptions and is why most individuals assume that they need to home hunt first, discover their dream residence, after which attempt to qualify for a mortgage mortgage.
As thrilling because the prospect of discovering a dream residence could also be, it’s essential to advise potential mortgage shoppers to get pre-qualified or pre-approved for a mortgage earlier than they even take into account searching for a home.
Spotlight why getting pre-approved—or pre-qualified, on the very least—is within the shopper’s greatest curiosity. For instance, pre-approval means prospects can know which funds to work with to place of their provide instantly after they discover their dream home.
14: You may’t get an FHA mortgage with good credit score
Folks generally consider that FHA loans are for folks with low credit score or who haven’t saved sufficient for a down fee. The reality couldn’t be any additional.
Sure, FHA mortgage loans are a fantastic possibility for folks with a decrease credit score rating and downpayment, however that doesn’t imply these loans discriminate towards anybody. The low-interest charges and decrease down fee necessities make this a pretty possibility for everybody. Thus, homebuyers with good credit score and sufficient cash for a downpayment can benefit from them.
Conclusion
Mortgage myths can flip off potential shoppers who would have in any other case made nice leads. For those who will help potential and on-the-fence home-owner prospects weed out details from the myths and overcome mortgage angst, you will get to closing faster.