When you’re buying a home for sale in Aspen, there’s a pretty good chance that you’ll need a mortgage loan – most people do. But if you’re like most people, there are a few mortgage myths swirling around that are tempting to believe. Check out these 3 mortgage myths it’s safe to kiss goodbye for 2021 (and the foreseeable future).
Kiss These 3 Mortgage Myths Goodbye for 2021
It’s time to move on from these three mortgage myths:
- You need to come up with 20 percent of a home’s purchase price for a down payment
- Prequalification is the same thing as preapproval
- You’re better off choosing the loan product with the lowest interest rate
Here’s a closer look at each (and why they’re wrong).
Mortgage Myth #1: You need to come up with 20 percent of a home’s purchase price for a down payment
Dozens of loan products exist that don’t require you to come up with a 20 percent down payment – and they’re definitely more common than they used to be.
Although 20 percent used to be the “gold standard” for obtaining a home loan, that’s just not the case any longer. Some loan products let you come up with as little as 3 percent down; other, less-common mortgages (such as VA loans) let you pay nothing down.
If you put down less than 20 percent of a home’s purchase price, your lender will most likely require you to pay for private mortgage insurance, or PMI; this protects the lender in the event that you default on your payments. However, for many people, paying a little extra each month is worth avoiding the long wait to save up enough cash to buy a home. (And some loans, such as the VA loan, allow you to buy a home with nothing down and forbid lenders from making you purchase PMI.)
Related: Can you buy a home in Aspen with a VA loan?
Mortgage Myth #2: Prequalification is the same thing as preapproval
Loan prequalification and loan preapproval are two very different things – and your Aspen real estate agent will probably advise you to get preapproval as soon as possible.
Prequalification is simply a lender saying, “It looks like you may qualify for a mortgage loan, based on what we know about your financial situation – but we haven’t checked up on your credit or your income.”
Preapproval only happens when you submit documentation to your lender, your lender checks your credit and evaluates your financial situation, and says that as long as nothing major changes in your situation, it will lend you a specific amount of money to buy a home.
Preapproval is important because you can use it to get an edge when you make an offer on a home. Sellers are more likely to take their home off the market for you when you show that you’re definitely eligible for a mortgage, which means you’re qualified to buy the home).
Related: What is an adjustable-rate mortgage
Mortgage Myth #3: You’re better off choosing the loan product with the lowest interest rate
Every loan product is different, which means that some may work for you while others won’t. Although it may seem like you’d be better off choosing the loan product with the lowest interest rate, that’s not always the case. In fact, some loan products may be better-suited to your lifestyle (such as a 15-year mortgage with a slightly higher interest rate, or perhaps a loan that doesn’t require a 20 percent down payment but has a slightly higher interest rate than one that you need to save up more cash to get).