Are pre-approvals and pre-qualifications the same thing? If you are pre-approved are you guaranteed to close your mortgage loan? Do all mortgage loans require a 20 percent down payment? In today’s blog post, I hope to debunk a mortgage myth or three and help you better understand the mortgage process.
Mortgage Myth No. 1
Pre-qualification and pre-approvals are the same thing. FALSE.
Pre-qualifications will give you an idea of what kind of loan you may qualify for and can typically be completed in minutes. This informal estimate may be just fine for those in the very early stages of the home buying process.
Pre-approvals are more involved and are a better indication of your ability to fully qualify for a mortgage loan. In order to get pre-approved, we will gather all the information we need to begin the loan process. This typically involves a credit check as well as income and asset verification.
Mortgage Myth No. 2
You need a 20-percent down payment. FALSE.
There are a lot of options out there for home buyers, including Federal Housing Administration (FHA) loans that allow borrowers to put as low as 3.5-percent down. USDA loans and VA loans typically don’t require a down payment, but do have certain eligibility requirements.
While a lower down payment may help borrowers get into a new home sooner, mortgage insurance is typically required.
Mortgage Myth No. 3
Your mortgage pre-approval means that your mortgage is guaranteed. FALSE.
Too many borrowers make the mistake of making large purchases or applying for new credit while in the middle of the mortgage process.
If you have applied for a mortgage loan or intend to apply for a mortgage, do not under any circumstances apply for new credit. This means no new credit cards, credit card consolidations or auto financing. If you open a new account during the mortgage process, it will need to be verified by your lender. While you may think that your lender won’t know, lenders do a credit check prior to closing to ensure your account status hasn’t changed. Anything that changes will require additional verification. Your credit score could change because of your new financial situation, which could cause delays in your settlement or changes to your interest rate.