Common Mortgage Fears – And Why They Shouldn’t Hold You Back
Mortgage rates are at historic lows, rental spaces are harder to come by and the economy is recovering from the Great Recession. By all accounts, these factors should lead to increased home sales. New research from technology firm Ellie Mae shows, however, that many prospective buyers are afraid to apply for mortgages. Many of the fears mentioned by study participants are financial ones, including the four most common concerns below:
- My credit score is too low. Many prospective buyers note that average credit scores for various mortgage products range from 686 – 752, depending on the type of loan. If you find yourself below that mark, however, keep in mind that these numbers are only averages. Many of the 70 percent of consumers with scores below 700 are approved for mortgage loans each year.
- I don’t have enough money for a down payment. This is a common concern for those raised to believe that the only acceptable down payment is 20 percent. Though it was true in decades past, the market has changed. Many consumers put as little as 4 percent down, then buy cost-efficient Private Mortgage Insurance (PMI) to protect the lender.
- I have too much debt to get a home loan. As student loan debt has risen tremendously in the past decade, so has prospective buyers’ fears about debt load. Even with significant debt, however, you can often qualify for a mortgage because income plays an important role. Many lenders will approve a loan as long as the monthly payment is less than 35 percent of your monthly income, even with considerable debt.
- I’ll get stuck with a high interest rate. If you have a low credit score, little savings and lots of debt, you’re probably going to get a mortgage loan with a higher-than-average interest rate. However, mortgage rates across the board remain near all-time lows, so there’s no time like the present.
If you’re worried you won’t get approved for a loan, don’t make assumptions. Meet with several lenders and ask questions. Many will provide a free-of-charge preapproval process to let you know exactly where you stand.
Image via Flickr/ethan