Dispelling myths about getting a mortgage

Mortgage broker: Liz Bayer, ProMortgage.

Property type: Contemporary condo in Sausalito.

Appraised value: $800,000.

Loan amount: $719,920.

Loan type: 30-year fixed.

Rate: 5.85%.

APR: 6.21%.

Backstory: A past client referred a friend who had been renting for several years who finally decided to stop paying her landlord’s mortgage and buy her own home instead. She had many preconceived misunderstandings on what she would qualify for, and it was my job to dispel some long-time myths.

Myth #1: She had owned a home 10 years ago, so was not a first-time homebuyer.

The Fact: In the mortgage industry, a first-time homebuyer is defined as anyone who has not owned a home within the past three years. The good news is that conventional loans provide a leg up in better rate pricing if the borrower has middle to low income.

In the Bay Area, borrowers who make $181,000 or less meet this income qualification, and my client fell just below this income cap.

Myth #2: Her credit score was under 700, so lenders would require her to make a 20% down payment, which she could not afford. It was her understanding that she would have to go with an FHA loan because FHA loans allow lower down payments for borrowers with low credit scores.

The Fact: In conventional lending, qualified first-time homebuyers only need to put 3% down, and you can have a credit score less than 700.

What I love about this is, while there will be mortgage insurance, the mortgage insurance payment eventually will drop off, whereas on an FHA loan, the mortgage insurance never drops off when there is a low down payment.

Myth #3: Mortgage rates are higher when you buy a condo with less than 25% down.

The Fact: Well, this is actually true for some. However, in my borrower’s case, since she met the “middle income” cap requirement and was a first time homebuyer, all of the negative rate pricing adjustments disappeared. So, buying a condo, having a credit score of 640, and having a lower down payment, which all normally negatively impact the rate, were removed.

Her rate was in the high 5s, whereas those who did not meet the first time homebuyer/income category had their rate priced in the mid 7s.

My borrower was thrilled with my guidance, which put her into a great loan that increased her buying power, and she found a condo with an easy commute to San Francisco for her job.