In today’s market, it is rare for Nashville homebuyers to be able to pay for a new home in all cash. As a result, most of these same Nashville homebuyers rely on a mortgage from a bank.
Mortgages are simply tools to help Nashville homebuyers get into a new home. And like any tool, knowing how best to work with them can provide you with a better experience.
If you are considering applying for a mortgage in the near future, be sure you are properly educated on what all the process entails. Those Nashville homebuyers who are best prepared are the ones who will succeed in the buying process.
To help you get started, here are some of the bigger mortgage myths that Nashville homebuyers must be aware of:
While typically the more money Nashville homebuyers can put towards a down payment the better, not all home loans come with the 20% down requirement. For example, through an FHA mortgage, first-time Nashville homebuyers can find themselves putting down as little as 3.5%. Meanwhile, other options like VA mortgages and USDA loans often require zero to very little down.
Again, while it can be in your best interest to use as large a down payment as possible, Nashville homebuyers have options well below the 20% mark.
Getting pre-qualified can be a good place for Nashville home buyers to start their journey, but it is not a guarantee. You should not make the mistake of equating “pre-qualification” to “pre-approval.”
Pre-qualification will simply give Nashville home buyers a ballpark number of what they can afford. Pre-approval, on the other hand, is a much more in-depth process that digs into your credit and finances.
However, even though pre-approval is better than pre-qualification, there is are still no guarantees there either.
Getting approved for a mortgage involves a number of factors. Two of these are your credit score and your debt-to-income (DTI) ratio. While the better your score and the lower your debt will definitely help Nashville homebuyers, less than perfect in either of these areas will not necessarily be dealbreakers.
When it comes to securing a conventional loan, the minimum credit score necessary is 620. However, for an FHA loan that only requires a 3.5% down payment, the minimum score is 580. Taking these numbers into consideration reveals that an “excellent” score of 720 or above is not always required.
That being said, when it comes to your DTI ratio, Nashville homebuyers will want to as little debt as possible. Just as with the credit score, there is some flexibility here as Fannie Mae and Freddie Mac have the maximum allowable DTI at 50 percent in order to qualify.
Thanks in large part to the housing crisis of the late 2000s, homebuyers tend to shy away from non-traditional loans like adjustable-rate mortgages (ARMS). However, savvy buyers will always want to review all of their options before deciding.
For example, an ARM with a lower initial interest rate might be a great option for those homebuyers who know they will be moving in the next 7 years. In most cases, they will be out of the home before their ARM interest rate resets at a (possibly) higher rate.
At the same time, maybe a fixed rate is ideal for you. But keep in mind that these loans come in shorter lengths of times as well. Taking a 15-year option can save you tens of thousands of dollars in interest payments over the traditional 30-year loan.
Working your way through the maze of mortgage info can feel like an uphill battle for Nashville homebuyers. But by investing the time to learning as much as you can, you put yourself in a position to make a financially smart decision. If you have questions you can always sit down with a lender to review your options in more detail.