There are a lot of myths and misconceptions about mortgages. Mortgages can seem like a complex process, and as there is a lot of information involved, it’s important you know the difference between what is a myth and what is actually required when it comes to a home loan.
Here are five of the most common mortgage myths debunked.
1. You need a 20% down payment to qualify for a mortgage
One of the most common misconceptions about mortgages is that you need a 20% plus costs deposit to get a home loan.
Saving up a 20% deposit plus costs can feel like an impossible feat for many potential homebuyers, but luckily you don’t need to do this. While there can be benefits to saving 20%, it is not essential for being able to get a home loan.
It’s important to do your research into the loan options offered by various banks and lenders, as requirements can differ, but many will approve a loan with only a 10% deposit.
It’s important to understand however, that if you do pay a deposit that is less than 20%, you will be subject to paying Lenders Mortgage Insurance (LMI). This fee provides insurance for the lender in the instance that you are unable to repay your loan.
2. You need a perfect credit score
It’s a common belief that you need to have perfect credit in order to qualify for a mortgage, however, this simply isn’t true.
While having excellent credit will certainly help your chances of being approved for a loan and getting better interest rates, it’s not the ‘be-all, end-all’ requirement that many people think it is. Working with a mortgage broker or finance specialist, you can find the best loan option for you, even if you have a less than perfect credit rating.
A home loan can also help you improve your credit score, as if you keep up with your loan repayments, your score will get better. This could even allow you to refinance later on and get better rates on your home loan.
3. Home loan pre-approval is as good as being approved
When you start looking at property to buy, it’s recommended you get pre-approval on a home loan.
Home loan pre-approval lets you know how much the bank is willing to lend you. However, it’s crucial to understand that pre-approval, or ‘conditional approval’ is not the same as getting approval on a home loan (also known as ‘unconditional approval’).
Getting pre-approval is one of the first steps towards buying a home, but once you’ve found a home you’d like to buy, you still need to apply for approval, and even if you already have pre-approval your application can still be rejected. This is because the bank will need to verify the finer details of your application to determine if you qualify for approval, and this process can be much longer than applying for pre-approval.
4. Once you have a home loan you can’t change lenders
When applying for a home loan, your mortgage broker will find the best lender and home loan option for you, based on your needs and financial situation. But that doesn’t mean you’re stuck with that same lender for the entire duration of your home loan.
Home loans can last up to 30 years, and during that time a lot can change. From the economy, to interest rates, to your own financial situation. It may not always be in your best interest to stay with the same lender, especially if after a few years you can get better rates or terms with someone else.
Refinancing has become much easier now, and can help you save significantly in the long term. If you’re considering refinancing and switching lenders, speak to your mortgage broker and they can help simplify the process.
5. Buying a home in today’s market is impossible
While buying a home is undoubtedly hard, and takes a lot of time and savings, it is not impossible.
Working with a mortgage broker from the start can help you get a better understanding of what’s involved with the process of getting a mortgage and working out what fits within your budget. It’s important to have realistic expectations when looking for a home, and to never buy what you cannot afford, but it certainly is not impossible.
So now that you know the truth about mortgages, it’s time to get out there and shop for your dream home. Get started by checking out our mortgage calculator to see how much house you can afford, then start browsing for homes in your area. With the right information, buying a home is within reach for everyone.