Mortgage Myths

Despite the large amount of information that is available on the internet for home buyers, sellers, and home owners to educate themselves, there is still many myths and information which is plain wrong floating around.

One such myth is that if you apply with one mortgage company that pulls your credit report, that your score will go down if you apply at another company.

According to First American Credco, which is one of the nations largest credit reporting agencies, a consumer who is actively shopping for a mortgage may apply and have their credit report pulled an unlimited number of times within a 14 day window with no reduction in their credit scores.

Many people get this mixed up with the true fact that applying for certain types of credit, such as credit cards and other revolving credit accounts, and being rejected for credit will bring your score down.

Another common mortgage myth is that all adjustable rate mortgages or ARMs always adjust up. The truth is that many ARMs will adjust up or down depending on the market conditions and the index they are based on.

Another myth is that a 30 year fixed mortgage is always the "best" mortgage to get. Often times, depending on the goals and plans of the borrower, it makes more sense for them to be in an Interest Only ARM that is fixed for 5, 7 or even 10 years. This may allow the borrower to maximize their cash flow and set aside more money for retirement or other investments.

One common mortgage myth is that it is only wise to refinance your home if you are able to lower your interest rate by at least 2% (two percent). However, in this day and age with all of the creative financing options available and Americans incurring more debt than ever this is not true at all. If you were able to consolidate all of your bills and save $1,000 a month through a debt consolidation refinance, even if your interest rate on your mortgage actually increased, this would still be worthwhile to most consumers. The bottom line is these so-called "experts" who insist that you do not refinance unless you can lower your rate 2% do not pay your bills each month. You pay your bills and know your finances better than anyone and you know what is going to help you and what is not. There are many reasons to refinance besides trying to lower your interest rate. Some of these reasons are to increase the term on your loan (say from a 10 year mortgage back up to a 30 year mortgage), to consolidate debt, to obtain cash out of the equity in your home for a vacation, home improvement, kids school tuition, etc..., to refinance from an ARM to a fixed rate, to refinance from a normal mortgage to an interest only loan, etc... Therefore consult a mortgage professional to see if there is a program that will fit your needs and financial goals.

another common myth, in regards to credit reports, is that paying off an account in collection helps your credit score. paying off accouts in collection often lower your score.

One common myth purports that a borrower can get a better "deal" by going straight to a bank rather than through a mortgage broker. The fact is that brokers have access to a much wider variety of loan programs than any single bank. Additionally, brokers obtain the loans at wholesale so they can often offer better pricing than the retail bank.

Another common mortgage myth involves getting cash back at the closing of a purchase. This myth is seen most often when a house is selling for less than its appraised value. This usually involves an 'under the table' transfer of cash shortly after closing. The undisclosed transfer of funds from the seller to a buyer is mortgage fraud and can trigger the acceleration clause making the whole loan due immediately. There are a few very specific loan programs that allow cash back at purchase for the rehabilitation of the newly purchased house, but this transfer of cash is disclosed to the lender and made subject to the lender's guidelines.

Another myth is that a loan with no "points" (a point = 1% of the loan amount) is always preferred over a loan that includes paying a point or more. The reality is that if you pay no points you will have a higher interest rate. Conversely, if you pay a point or more you wiill get a lower rate - usually .25% for each point. If you plan on holding your mortgage for more than 3 years it is often cost effective to pay points and get the lower rate.

» DISCLAIMER: The information contained in this article on 'Mortgage Myths' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.