Thinking of purchasing a home? Don't believe everything you are told or read on the internet. The mortgage landscape has evolved and the truths of yesterday are today's myths.
Myth 1 - Automated Underwriting Systems (AUS) are optional.
Not anymore. AUS systems measure a loan’s risk and determine approval. Originally developed by Freddie Mac and quickly embraced by all loan providers, if a loan is not approved through the system, it may prove difficult to receive an underwritten approval. FHA/VA/USDA will typically allow a "manual" underwrite but with much stricter criteria. Conventional underwriting? Forgetaboutit, with the new Ability to Repay (Qualified Mortgage) regulations, most lenders are too afraid Fannie and Freddie will not insure conventional loans without an AUS approval.
Myth 2 - Private Mortgage Insurance (PMI) is good for the borrower.
PMI helps borrowers purchase homes with as little as 5% down, in exchange for a monthly fee (PMI). The monthly amount is determined by the credit score and down payment amount. The true purpose of PMI is to absorb some of the lender’s risk in case of default. It is good for the banks.
Myth 3 - VA loans are too strict.
Not in today’s mortgage world. VA is by far the best option for all borrowers who are VA eligible. VA has made zero changes in the way they underwrite loans for the past 20 years. Not only is it a privilege to originate VA loans but VA offers an awesome Jumbo Product, for loans over $417,000 with as little as 5% down.
Myth 4 - FHA acquired dementia last year and forgot their mission statement to borrowers and increased their monthly mortgage insurance to ridiculous levels.
Actually, this one is true. Lenders reported $8.7 billion in new FHA originations in January, down from $23.7 billion from a year ago. As soon as FHA wakes up from their self-imposed dementia stupor, changes for the better will be forth-coming.
Myth 5 - There is no reason for borrowers to use FHA anymore.
Unfortunately FHA is the only option for borrowers with marginal credit (as low as 580 credit scores). Even for borrowers with good credit and lots of money to put down, FHA is the only option for those who endured a recent bankruptcy, short sale or foreclosure. And yes, they are forced to pay the gut-wrenching monthly mortgage insurance.
Myth 6 - A good credit score can guarantee you a loan.
Nope, this is a major myth. The score tells only a part of the story. Borrowers with high credit scores (and low) may have issues on their credit, which will not allow them to purchase a home.