Mortgage shoppers hear many strange tales about the home loan-shopping process. Here are 6 common myths about shopping for a mortgage and the facts you should know:
Myth: Shopping for a mortgage loan will hurt your credit score.
Fact: Credit scoring companies know most people want to shop around for a mortgage or car loan. That’s why their formulas allow a window of time during which multiple inquiries about your credit will be counted as only one inquiry. If you stay within that window, you don’t have to worry about shopping for a loan from multiple lenders. (For more information, read the LendingTree article Credit Inquiry FAQ or “Credit Inquiries” on myFico.com.)
Myth: All lenders sell your personal information to telemarketers.
Fact: When you apply for a loan and the lender checks your credit history, the credit reporting company may sell your name and telephone number to other lenders. These names and telephone numbers are known as “trigger leads.”
If you’re shopping for a loan and don’t want to become a trigger lead, you can submit a form online at OptOutPrescreen.com. This will help to keep your information private and ensure the credit bureaus won’t sell your information as a trigger lead.
Myth: Everyone can qualify for the low interest rates advertised on television.
Fact: Advertised interest rates may require that you have a very high credit score or pay a lot of upfront fees that add to the cost of your loan.
The best way to find out exactly what interest rates you’ll qualify for is to shop around and compare loan offers from multiple lenders. The rates you’ll be offered will depend on your credit score, the type of loan you want and your down payment (or the equity in your home) as a percentage of the amount you want to borrow.
Myth: If the Federal Reserve raises interest rates, mortgage interest rates will go up.
Fact: The Federal Reserve sets bank interest rates, not mortgage interest rates. While the Fed doesn’t directly control long-term interest rates for mortgages, auto loans, credit cards or other types of consumer loans, the interest rates on those types of loans can be affected by the Fed’s decisions, actions and statements. But keep in mind that if you have a fixed-rate loan, the rate won’t change no matter what the Fed does. If you have an adjustable-rate loan, the adjusted rates may be indirectly affected by the Fed’s actions. (For more information read: How the Fed affects mortgage rates.)
Myth: The loan that has the lowest interest rate or lowest monthly payment is always the best loan.
Fact: Mortgage loans are not all alike. Some have a fixed interest rate while others have an adjustable rate. It's important to compare more than just the interest rate and monthly payment when shopping for a mortgage. Be sure to look at the loan's costs and fees, as well as the terms of the loan. For example, some mortgages may offer a low initial monthly payment but require a balloon payment. Or a loan may have an interest-only period, after which your monthly payment will rise dramatically. And some have less expensive costs and fees, which may make sense for your situation.
Myth: I may be required to pay a large sum of money up front to guarantee my loan approval.
Fact: The federal government has warned borrowers to be aware of so-called “advance fee loan scams,” in which a lender guarantees that the borrower will be approved for a loan after the borrower pays a hefty upfront fee. Be wary if a lender asks for you to send or wire a large upfront payment to “guarantee” your loan approval. This may be the sign of a scam.
Reputable lenders may charge modest fees to review your credit report and conduct an appraisal during the loan approval process, but they typically don’t approve a loan until they’ve reviewed your financial situation.
For more information about advance fee scams, visit the FTC's Facts for Consumers.