Zero Down Loans & Other Common Mortgage Myths

February 5, 2012 Marc Edelstein Mortgage Tips 0 Comments

After the credit crunch between 2008 and 2009, it’s no surprise that people tend to get michigan mortgage mythsconfused about the qualification process involved with getting a mortgage in Michigan. It certainly doesn’t help home buyers when the mortgage market changes so quickly, and the population of misinformation on the web only makes matters worse.

Here are some of the most common mortgage myths on the market and the truth surrounding them.

Mortgage Myth #1 – Buyers with Bad Credit Can’t Qualify for a Mortgage in Michigan

Lenders have certainly tightened the notch on their belts since – as some put it – “the housing bubble burst”, and some forecast that things will only tighten up more in the future.  That isn’t necessarily true if you look at trends over the last 12 months.

In fact, last spring, two of the nation’s largest lenders of FHA loans announced they were lowering the minimum FICO score guidelines from 620 to 580 for qualification and consideration.  That allows for some credit imperfections and all things considered, that’s a fairly low score.  At 580, it’s possible for a lender to approve a mortgage if the terms and down payment fit the bill.  Basically, they want to know that you’re coming to the table with an investment of your own.

That is in addition to the fact that there are programs specifically designed to help buyers with lower credit scores obtain a mortgage for their first home in Michigan.

Mortgage Myth #2 – Interest Deductions are Disappearing

In 2011, The National Commission on Fiscal Responsibility and Reform created a nasty ripple effect in the real estate world by recommending Mortgage Interest Deduction (MID) reform, essentially hoping to reduce the size of the allowed deduction.

The intent was to cut away from the national deficit but, thankfully for buyers and sellers alike, MID reform doesn’t appeal to congress and through November of last year Congress still holds that now is not the time to make any changes to the mortgage interest deduction.  Any change would stop the stabilization of the real estate market.  Don’t let fear of a change hinder you from working toward buying your first home.

Mortgage Myth #3 – Loan Guidelines will Eventually Loosen Up

The US Treasury Department recommended in 2011 that mortgage industry giants Fannie Mae and Freddie Mac be eliminated.  I won’t get into the eye glazing details but lets just say that Freddie Mac and larger rival Fannie Mae have survived on Treasury aid since September 2008, when they were seized by the federal government amid losses stemming from the collapse of the subprime mortgage market. As of last November, Freddie Mac was seeking as much as $6 billion from the treasury department.

If the Treasury department were to phase out either of these entities, it would make a mortgage in Michigan actually harder to get, and they would be costlier for buyers as well as sellers.  If you’re holding out for the “white Pegasus” zero down loan, don’t.

I’m not stating that either of those organizations will disappear anytime soon, so you’ve got plenty of time to pull together a proper down payment and get your credit situation together.  As always, if you want to buy a home in Michigan, it’s best to move now as opposed to gambling on the future.

Mortgage Myth #4 – You Need a Down Payment of 10-20% to Get a Mortgage

There are some that believe it’s easy to get a zero down mortgage, and others that you need to have a big down payment in order to get approved.  The fact is, there are numerous lenders and countless programs for people who can’t afford much more than a 5% down payment (or less).  You don’t necessarily have to have rolls of money hanging around in order to buy a home and qualify for a mortgage.

The best way to get out from under the hindering, crushing weight of mortgage myths is to talk to a mortgage banker in Michigan.  Don’t be a victim of misinformation, especially if one of these myths is holding you back from making the switch to buying vs. renting.

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