People will always need houses. In 2008, the year the Great Recession began, $1.4 trillion in new mortgages were issued. Today, we’re enjoying a strong economy and low unemployment, and many people are applying for their first mortgages. There’s no denying the fact that buying a home can be a complicated process, but what makes it even more complicated are the misconceptions that many people take for fact. Here are just a few myths you shouldn’t believe when applying for a home loan.
Owning a home is always better than renting.
At first glance, this myth doesn’t seem entirely illogical — after all, with homeownership comes equity, and renting is typically viewed as ‘throwing your money away.’ However, the economy is much different than it used to be, and buying a home isn’t the right decision for everyone. Many experts say it’s best to grow your savings before taking the plunge into homeownership. Of course, every financial situation is different, so it’s best to consult with a financial advisor to determine the best option based on your needs and goals.
Your banking relationship does not matter.
There is no doubt that a home mortgage is often thought of as a commodity product, and comparing rates and fees is all a consumer needs to do. However, unexpected problems or hurdles may occur during the mortgage process. Home buyers that don’t have a strong relationship with their lender may experience difficulty getting timely answers and can lose out on their mortgage and, perhaps, even their security deposit on the house. It is important to trust your lender and have a good understanding of how to connect with them.
APR is the same thing as interest rate.
This, again, may seem to make sense, but it’s not quite the truth. APR stands for annual percentage rate, with the key word there being “annual”. In reality, APR is the more important rate because it provides clues regarding long-term fees and loan terms. For example, the APR may include closing costs, interest, and discount points. The fees, closing costs and APR will all be disclosed during the application process.
“When shopping around for a mortgage, interest rates are one of the most important factors to compare. Getting the lowest rate possible is key; even a difference of 1% can either save you or cost you tens of thousands of dollars over a 30-year mortgage. But a more important measure is the annual percentage rate, or APR. That’s because the APR represents the aggregated cost of doing business with the lender,” writes Casey Bond on The Huffington Post.
“We’re 10 years removed from the Great Recession, and the economic situation couldn’t be more different. Thanks to a strong seller’s market, housing prices are rising (but not too fast) along with consumer confidence. However, before you decide to apply for your first mortgage, it’s important to carefully research the terms and interest rates. If the Great Recession taught us anything, it’s that no mortgage is better than a bad mortgage.”
According to a Bankrate study, 32% of Americans between the ages of 53 and 62 reported they had zero dollars saved, more than any other age group. But regardless of your age or amount of savings you’ve built up, understanding the true facts during the home buying process is something you just can’t put a price on. For more information and assistance with applying for a home loan, contact First Bank of the Palm Beaches.