By Patricia Placencia
Housing market conditions over the past few years haven’t helped—but one of the biggest obstacles is misinformation: Myths and lack of awareness of the home lending help readily available in our state.
Let’s do a reality check. You may be surprised.
Rhode Island leads, in good times and bad.
Our state was one of the first to feel the housing-market crunch, and now, one of the first to see some recovery. But values have overheated fast. According to the Mortgage Bankers Association, homes in distressed areas have appreciated by 25%.
Rhode Island today reflects the U.S. as a whole: The inventory of available homes is tight. It’s a seller’s market, with bidding wars that put many homes out of reach.
As a result, the Mortgage Bankers Association reports a 25-30% decrease in purchases this year. They project the same outcome for 2019.
As both mortgage rates and property values shot up, many first-time buyers found themselves in a position where they might not qualify for a mortgage.
Or so they thought.
6 Mortgage Myths versus Reality
Myths may be preventing people from moving forward. For example:
Myth 1. You need a 20% down payment.
That used to be the case. But today, some mortgage programs require as little as 3% down. In Rhode Island, some people can put down as little as $500.
Myth 2. You need a substantial credit history.
You haven’t yet built a solid credit score by conventional measurements? Don’t let that stop you. Today, some lenders will consider non-traditional credit sources—your utility payments, rent, and cell phone bills, for example.
Perhaps you’ve had bumps in the credit road: a bankruptcy, short sale or foreclosure. You may be able to buy that home if you work with your lender on a plan to repair your credit. Ask us about it.
Myth 3. You’ll do better online.
You may start your search online—but don’t stop there. Online (sometimes called “fintech”) programs may not show you specific state and local programs that could provide serious savings. For that, you may need a banker who knows the local territory.
Did you know that Rhode Island’s government-assisted mortgages and municipal programs could potentially significantly lower your costs? For example:
- The city of Providence could give you up to $2,500 toward your purchase if you commit to staying in the home for five years.
- The town of Cranston could offer assistance for both down payments and closing costs.
Those are just two of the opportunities for support funded by government partnerships with non-profit organizations, but they’re often overlooked. Talk with a local mortgage specialist with boots on the ground in your community.
Myth 4. It’s all about the lowest rate.
The interest rate is just part of the story. An online lender’s advertised rate may not take into account factors that can increase your costs: loan-level pricing adjustments based on property type, loan-to-value, and your credit score, for example.
Plus, the terms of the online offers may not be right for your actual situation. (Many assume you’ll make that not-always-necessary 20% down payment).
Myth 5. All lenders offer FHA-insured mortgages.
That’s not true, especially among online lenders. And you may want the advantages of an FHA-backed loan: Their mortgages could enable borrowers to put less money down and may not require a credit score as high as a conventional lender might need. That’s because the federal government insures the lender, should the borrower default.
Myth 6. You need a raft of paperwork to get started.
At your first meeting with a lender, you likely won’t need to bring pay stubs, W2 forms, tax returns, or bank statements. Truth in Lending laws state that you don’t have to provide that information until you actually apply for a mortgage.
Just jot down your income for the past few years, your checking and savings balances, and some idea of your debt. You may not need to talk specifics until you’re ready to talk turkey.
Fact: One hour with a mortgage banker can save you hours of confusion.
Home-buyers come to us to get a mortgage pre-approval, often even before they talk to a realtor. The consumer, realtor and banker make up a powerful team to help uncover programs that may help you get into the home you want.
That dream home could become a reality—once you realize all the support right at hand.
The opinions and views in this blog post are those of the authors, and are not intended to provide specific advice or recommendations for any individual. Please consult your tax advisor regarding your individual situation. All loans and lines of credit are subject to credit approval. The Webster symbol is a registered trademark in the U.S. Webster Bank, N.A. Member FDIC.
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