Mortgages are very complicated and tough subject to understand. If is often seen that many of you take out a mortgage loan without much understanding the inherent intricacies associated with it. Lack of knowledge on mortgages often results into common mistakes committed by you. Different types of misconceptions are also prevalent in the industry. Here we discuss about 5 common misconceptions related to this.
1. You have to take the mortgage loan from the lender with whom you were pre-approved.
Getting pre-approved for a mortgage loan is a wise decision. It is really useful to effectuate the actual purchase. At the time of pre-approval, your candidature is verified – your income, employment and credit standing are checked by the lender. However, pre-approval agreement is not a binding agreement. It does not necessarily mean that you have to take out the loan from that lender. Even after getting pre-approved for a loan from a particular lender, you have the rights to not taking out the loan from that lender.
2. Rate on a mortgage loan measures the true cost of the loan
There is a widespread common misconception that the interest rate on the mortgage loan is the true indicator of the cost of the loan. Many of you take out a mortgage loan simply on the basis of the interest rate on that mortgage. Here it is to be noted that rate of interest is not the correct indicator of the true cost of a loan. A much better and broader indicator of the true cost of a loan is the annual percentage rate (APR). Apart from the mortgage rate of interest, APR includes various other costs such as loan origination fees, underwriting fees, mortgage insurance, points etc. So, while shopping for a mortgage loan, it would be wise to take into consideration the annual percentage rate, instead of considering the interest rate on the mortgage loan.
3. Mortgage loan can’t be obtained with a down payment of less than 5%
There is a common misconception among the home buyers that home mortgage loan can’t be obtained unless you make down payment of 10%, 15% or even 20% of the purchase price of the house. But this is not true. Home loans offered by the Federal Housing Administration (FHA) can be obtained with a down payment of as low as 3.5%. Again the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA) offer mortgage loan with no down payment at all.
4. Rate changes only once per day
Many home buyers are under the belief that mortgage rates change only once per day. However, this is not at all true. Rates can change any time and on a continuous basis. Since the mortgage rates change very rapidly, it is important to shop around so as to get the best rate.
5. You will get the best rate from the bank with which you have checking account
It is a common tendency to approach the bank for a home loan with which you have the checking account. This is because you think that you will be offered the best rate by that bank. But this is not always true. You may not be offered the best rate by that bank. So, it would be wise to shop around so as to get the best rate.