5 Rampant Mortgage Myths You’ll Hear These Days—Completely Debunked

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These days, things are changing so fast, it’s tough to keep up. That’s especially true in the mortgage industry, where interest rates and the overall home loan landscape are shifting with such head-spinning speed, it’s easy for outdated information to circulate, leading home buyers and homeowners astray.

You may have heard, for instance, that everyone can score a record-low interest rate, or that refinancing is a no-brainer, or that mortgage forbearance means you don’t have to pay back your loan, ever. Sorry, but none of these rumors is true—and falling for them could cost you dearly.

To help home buyers and homeowners separate fact from fiction, we asked experts to highlight some rampant mortgage mistruths out there today. Whether you’re looking to buy or refinance, these are some reality checks you’ll be glad to know.

Myth No. 1: Everyone qualifies for low interest rates

There’s a lot of buzz about record-low mortgage interest rates lately. Most recently, a 30-year fixed-rate mortgage dropped to 2.88% for the week of Aug. 6, according to Freddie Mac.

This is great news for borrowers, but here’s the rub: “Not everyone will qualify for the lowest rates,” explains Danielle Hale, chief economist at realtor.com®.

So who stands to get the best rates? Namely, borrowers with a good credit score, Hale says. Most lenders require a minimum credit score of about 620. Some lenders might require an even higher threshold (more on that later).

Your credit score isn’t the only factor affecting what interest rate you get. It also depends on the size of your down payment, type of home, type of loan, and much more. So, keep your expectations in check, and make sure to shop around to increase the odds you’ll get a good rate.

Myth No. 2: Getting a mortgage today is easy

Many assume today’s low interest rates mean that getting a mortgage will be a breeze. On the contrary, these low rates mean just about everyone is trying to get a mortgage, or refinance the one they have. This glut of applicants, combined with the uncertain economy, means some lenders may actually tighten loan requirements.

In fact, a realtor.com analysis found that 5% to 20% of potential borrowers may struggle to get a mortgage because of these stricter standards. And getting a mortgage could become even tougher if the recession gets worse.

For example, some lenders may also require higher minimum credit scores and larger down payments. In April, JPMorgan Chase began requiring a 700 minimum credit score and 20% down payment.

Jason Lee, executive vice president and director of capital markets at Flagstar Bank, says some lenders aren’t offering the loans that are considered riskier—such as jumbo loans, which exceed the conforming loan limit (for 2020, that max is $510,400).

“There aren’t as many loan products available,” Lee says.

And even if you do manage to get a loan, it may take longer than you’d typically expect.

“Based on low rates and a high volume of refinances, loans are taking longer to complete from application to closing,” says Staci Titsworth, a regional mortgage manager for PNC Bank.

As such, borrowers should ask their lender how long the process will take to close, and make sure they’re aware of the expiration date on the interest rate they’ve locked in—since with rates this low, they could go up.

“Most lenders are locking in the customer’s interest rate so it’s protected from market fluctuations,” Titsworth adds.

Myth No. 3: Everyone should refinance their mortgage

“With mortgage rates hovering near record lows, a refinance can make sense and can help free up monthly cash flow,” Hale says.

Still, not everyone should refinance. Homeowners should make sure to take a good hard look at their situation to see whether it makes sense for them.

For one, it will depend on your current interest rate. If it’s low already, it may not be worth the trouble—particularly since refinancing comes with fees amounting to around 2% to 6% of your loan amount.

Given these upfront costs, refinancing often makes sense only if you plan to remain in your house for a while.

In general, “refinancing is a good idea for homeowners who plan to live in the same home for several years, because they will reap the monthly savings over a longer time period,” Hale explains.

Myth No. 4: You can apply for a mortgage after you’ve found a home

Many people assume that you can find your dream home first, then apply for the mortgage. But that’s backward—now more than ever. Today, your first stop when shopping for a house should be a mortgage lender or broker, who can get you pre-approved for a home loan.

For “a buyer in a competitive market, it’s typically essential to have pre-approval done in order to submit an offer, so getting it done before you even look at homes is a smart move that will enable a buyer to move fast to put an offer in on the right home,” Hale says.

Mortgage pre-approval is all the more essential in the era of the coronavirus pandemic. Why? Because many home sellers, leery of letting just anyone tour their home, want to know a buyer is serious—and has the cash and financing to make a firm offer. As such, some real estate agents and sellers require a pre-approval letter before a potential buyer can view a home in person.

Nonetheless, according to a realtor.com survey conducted in June of over 2,000 active home shoppers who plan to purchase a home in the next 12 months, only 52% obtained a pre-approval letter before beginning their home search, which means nearly half of home buyers are missing this crucial piece of paperwork.

Aside from getting their foot in the door of homes they want to see, home buyers benefit from pre-approval in other ways. Since pre-approval lets you know exactly how much money a lender will loan you, it also helps you target the right homes within your budget.

After all, as Lee points out, “You don’t want to get your heart set on a home only to find out you can’t afford it.”

Myth No. 5: Mortgage forbearance means you don’t have to pay back your loan

The record unemployment caused by the COVID-19 pandemic means millions of Americans have struggled to pay their mortgages. To get some relief, many have been granted mortgage forbearance.

Nearly 8% of mortgages, or 3.8 million homeowners, were in forbearance as of July 26, according to the Mortgage Bankers Association.

The problem? Many mistakenly assume that mortgage forbearance means you won’t have to pay your loan, period. But forbearance means different things for different homeowners, depending on the terms of the mortgage and what type of arrangement was worked out with the lender.

“Forbearance is not forgiveness,” Lee says. “Rather, it’s a timeout from having to make a mortgage payment where your servicer—the company you send your mortgage payments to—will ensure that negative impacts to your credit report and late fees will not occur. However, because forbearance is not forgiveness, you will need to reach some sort of resolution with your loan servicer about the missed payments.”

The paused payments may be added to the back end of the loan or repaid over time.

“It does not forgive the payments, meaning the borrower still owes the money,” Hale says. “The specifics of when payments need to be made up will vary from borrower to borrower.”

The post 5 Rampant Mortgage Myths You’ll Hear These Days—Completely Debunked appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Are You a Homeowner Seeking Forbearance on Your Mortgage? Watch Out for These Red Flags

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Homeowners are asking for breaks on their mortgage payments in droves, as millions of Americans face the prospect of unemployment or reduced income because of the coronanvirus pandemic. But requesting forbearance on your mortgage isn’t foolproof.

The $2.2 trillion CARES Act stimulus package requires servicers to provide forbearance — a temporary postponement of payments — to any homeowner with a federally-backed mortgage. Americans with other mortgages may also be able to receive forbearance at their servicers’ discretion.

Requests for forbearance have poured in. Forbearance requests grew by 1,896% between March 16 and March 30, according to a recent report from the Mortgage Bankers Association, a trade group that represents the mortgage industry. And before that, forbearance requests had increased some 1,270% between March 2 and March 16.

As consumers have rushed to call their servicer in search of assistance, call centers have been overwhelmed, leading to longer wait times to speak with a representative.

“If you are eligible for this and you need the help, take full advantage of the program,” said Rick Sharga, a mortgage industry veteran and founder of CJ Patrick Company, a real-estate consulting firm. “But similarly, if you don’t need the help, and if you can pay your mortgage, don’t try and game the system and make it harder for people who really do need the benefits to access.”

For those who have yet to get a forbearance agreement in place, here’s what you need to know:

‘Forbearance is not forgiveness’

To be clear, mortgage borrowers will still need to pay off their loan eventually if they receive forbearance.

“Forbearance is not forgiveness,” said Karan Kaul, a research associate at the Urban Institute, a left-of-center nonprofit policy group. “You still owe the money that you were paying, it’s just that there’s a temporary pause on making your monthly payments.”

‘Forbearance is not forgiveness. You still owe the money that you were paying, it’s just that there’s a temporary pause on making your monthly payments.’

Karan Kaul, a research associate at the Urban Institute

Under a forbearance agreement, a borrower can pause payments entirely or make reduced payments on their mortgage. Homeowners with federally-backed mortgages are eligible for up to 180 days of forbearance initially under the CARES Act. At that point, if they’re still facing financial difficulty, they can request an extension of up to another 180 days of forbearance.

The provisions in the stimulus package stipulate that during the forbearance period, mortgage servicers cannot make negative reports about the borrower in question to credit bureaus, including the three main ones, Experian, Equifax and TransUnion. Borrowers also will not owe any late fees or penalties if they are granted forbearance.

You need to know who your servicer is

Struggling homeowners won’t automatically receive forbearance. You need to request it from your servicer.

Mortgage servicers are the companies who receive your monthly payments. A homeowner’s mortgage servicer isn’t necessarily the same as their lender — many lenders sell the servicing rights for mortgages to other companies.

The first step to figure out who your servicer is would be to check your mortgage statement. If for some reason the information isn’t there, you can look it up by searching the Mortgage Electronic Registration Systems website. Alternatively, you can check with Fannie Mae and Freddie Mac, if your loan is backed by one of them.

How do you know if you qualify?

To qualify for forbearance, a borrower must have a mortgage backed by one of the following federal agencies:

• Fannie Mae

• Freddie Mac

• The Federal Housing Administration (FHA)

• The U.S. Department of Veterans Affairs (VA)

• The U.S. Department of Agriculture (USDA)

Borrowers should avoid calling their servicers to find out if they’re eligible, Sharga said.

“Find out what you can before you try and reach your mortgage servicer, because they are overwhelmed with call volume right now,” Sharga said.

Fannie Mae and Freddie Mac both have websites where you can check whether your loan is backed by one of them. You can access those websites here and here. Almost half of all mortgages in the U.S. are backed by Fannie and Freddie.

To find out if your loan is backed by the FHA, check the original closing documents or your most recent mortgage statement. If you pay for FHA Insurance, then that agency is backing your loan. Alternatively, your closing documents should include a HUD (Department of Housing and Urban Development) statement and a 13-digit HUD number.

Because the VA and USDA loan programs target specific borrowers, those borrowers should already know if they have loans backed by those agencies. In the event you are still unsure, you can call your servicer.

Those who aren’t eligible aren’t necessarily out of luck, though. Servicers for non-federally-backed mortgages may still be willing to provide forbearance to borrowers facing financial trouble right now.

Be prepared to answer some questions

You don’t need to provide documentation to prove your financial hardship at this time, but your servicer may have some questions to determine how much assistance they will offer you.

The Consumer Financial Protection Bureau suggests being prepared to answer the following:

• Why you can’t make your payments?

• Is the problem you are facing temporary or permanent?

• What is the current state of your income, expenses and other assets, including money in the bank?

• Are you a service member with permanent change of station orders?

“Consumers should indicate they have had a hardship due to COVID-19 and ask about their forbearance options with the company servicing the mortgage loan,” said Chris Diamond, director of financial products at online mortgage lender Better.com. “They should ask how long of a forbearance they can qualify for as well as what their options are at the end of that forbearance period.”

Get your forbearance agreement in writing

The CFPB stresses that any borrower who has received a reprieve on mortgage payments should get their agreement in writing.

“Once you’re able to secure forbearance or another mortgage relief option, ask your servicer to provide written documentation that confirms the details of your agreement and that you’re clear on what the terms are,” the agency said on its website.

Having the agreement in writing will protect you if there are errors in your mortgage statement or your credit report.

Watch out for balloon payments

After a borrower has secured a forbearance agreement from their servicer, they should discuss repayment options.

“You don’t want a surprise like finding out that six months of deferred loan payments are all due immediately upon the end of the forbearance,” Sharga said. “Most people simply won’t have six months’ worth of mortgage payments available.”

Some borrowers have expressed concerns after being offered a balloon payment option like the one Sharga described. With a balloon payment, a borrower would pay back the entire amount owed for the forbearance period at once.

While a lender may offer a balloon payment as an option, there is no mandate that a borrower must repay in this manner, Kaul said.

Homeowners can and should aim to negotiate the best possible repayment options for them. “All those terms are negotiable,” Sharga said. “Be diligent, be steadfast and try and stand your ground.”

Beyond a balloon payment, servicers may offer to extend the term of the mortgage and tack on the missed payments at the end, so a 30-year mortgage would be extended by 4 months if that’s how much forbearance a borrower received.

There is no mandate that a borrower must repay what they owe in missed payments in one balloon payment after forbearance.

Alternatively, a borrower may also be offered the option to amortize the balance they owe over the life of the loan. This means they would repay a portion of the balance owed in addition to their usual monthly payments.

A borrower can request information on who owns their mortgage note, since the owner might be able to provide more relief options. Servicers must respond to these requests within 10 business days, said Andrea Bopp Stark, an attorney with the National Consumer Law Center.

“If the servicer does not respond, the borrower should send another letter and seek legal assistance,” Bopp Stark said. “The servicer could be held liable for actual damages and up to $2,000 statutory damages for a failure to respond.”

If you’re still in financial trouble after forbearance, consider a loan modification

It’s too soon to tell whether 12 months of forbearance will be enough assistance for those who are among the millions of Americans who have lost their jobs in recent weeks.

“The most beneficial option if the borrower might be out of work or impacted for an extended period is to request to modify the loan at the end of forbearance,” Diamond said.

Unlike forbearance, a loan modification involves a permanent change to the details of the mortgage. This can include adjusting the interest rate, extending the duration of the loan or deferring the amount owed until the end of the loan as a separate lien.

A servicer will determine whether or not a borrower qualifies for the modification.

The post Are You a Homeowner Seeking Forbearance on Your Mortgage? Watch Out for These Red Flags appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com