September 19, 2021

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Should You Get Mortgage Advice on TikTok? – Forbes Advisor

While TikTok was originally known for videos of prank and dance routines, in-person financial advice is gradually popping up on the platform, including mortgage content. However, it is Really a good place to get mortgage advice?

After reviewing the mortgage and home ownership videos, the results are mixed.

TikTok may be a starting point for some, but it’s not the place to do extensive research. It’s a platform that limits videos to a minute, which means a lot of videos overlook important information – broad lines at best. If you are relying on TikTok for mortgage advice, it is a good idea to verify that it is accurate.

Here are three examples of mortgage advice that are right, wrong, and somewhere in between.

Correct mortgage recommendation for TikTok

TikTok advice

TikTok creator @tawnyaschultz keeps her message short and straightforward. The on-screen text reads, “When banks don’t tell people it’s possible to buy a home with no credit score,” followed by a music sample that explains how this is wrong.

Forbes advisor’s verdict

That’s right. Borrowers with no credit score can still get a credit pro Fannie Mae or Freddie Mac Rules, which are the guidelines that most lenders follow. However, this only applies to buying a home or refinancing with no payout. If you want to tap Home equity When refinancing, you will either need a minimum loan value of 620 or you will need to turn to a lender who offers manual underwriting – a process that requires more paperwork than automated underwriting

If you do not have a credit history, the lender will create a “non-traditional credit profile”.

Some of the information likely to be used to create a nontraditional credit profile includes:

  • History of rent payments over the last 12 months in a row
  • Individual credit references (the lender can contact any company or person who has lent you money)
  • Bank statements from checking accounts, savings accounts, voluntary payments to a salary savings plan or contributions to a share purchase plan

It is important to note that there is a difference between no credit score and a low credit score. Someone with no credit score has no past debt with the credit bureaus, while someone with a low credit score has a poor record of debt, meaning they may have gone bankrupt, made late payments, or been in default.

Wrong mortgage recommendation at TikTok

TikTok advice

According to @lewishomesteam, the minimum credit requirements to buy or refinance a home fell in early January. In his video, he uses a table that shows this decline in credit scores from at least 620 to 600 across all mortgage categories: purchase loans, interest and term refinancing, disbursement refinancing, and rationalization refinancing.

Forbes advisor’s verdict

This information may be correct for a particular lender, but it doesn’t tell you which one. Additionally, it is not correct under the Fannie or Freddie guidelines that most lenders follow when drawing their mortgages. As of March 2021, the minimum credit requirement for Fannie and Freddie is 620.

One more thing to note: some lenders may apply lender overlays to minimum credit requirements.

An overlay occurs when lenders increase the minimum score to reduce their risk. This is often the case with Federal Housing Administration (FHA) Loanswho have minimum creditworthiness requirements of 500 to qualify for a mortgage or 580 to be eligible with a 3.5% down payment.

While Covid, as people laid off and businesses closed, many lenders increased their minimum credit requirements to mitigate any risk.

Advice on mixed mortgages at TikTok

TikTok advice

Shorter mortgages mean less interest paid over the life of the loan, but higher monthly payments. For example, you pay less aggregate interest on a 15-year mortgage than on a 30-year mortgage, but you spend more on mortgage payments each month.

Instead, @ money.myth.buster recommends borrowers take a 30-year mortgage and put the extra money they would have spent on the 15-year mortgage into a compound interest savings account each month. He says if you do this, you will see over $ 1.3 million in savings over 30 years, compared to the less impressive $ 103,885 interest you would save on a 15 year mortgage.

Here is the example he gave:

Forbes advisor’s verdict

Most of that advice is correct, but we need to clarify a few points. The first problem with his example is that he applies the lower rate to the 30-year fixed-rate mortgage instead of the 15-year mortgage; Lenders usually reward short-term mortgages with lower interest rates. This is one of the advantages of a 15 year mortgage.

Another problem with his example is that he omits two important pieces of information: the interest rate on the compound interest savings account and the type of account that is sufficient to earn more than $ 1.3 million. He mentions that he is putting the money into a “compound interest savings account,” but doesn’t say what type of account determines how much you can make.

If you deposit your money into a regular bank savings account (including one with compound interest), you will be very disappointed in 30 years’ time. Currently, the best interest rates are for High yield savings accounts are by 0.50%. Instead, you’d have to invest the money in something like one ROTH IRAThat’s about a 7% annual return to become a millionaire in 30 years – and even then, there is no guarantee you will get such a high return.

What you should know about TikTok – and get advice on social media

Anyone with an Android or iPhone can get a TikTok account – just download the free app and you’re in.

TikTok videos are limited to a minute, so the advice you get is likely to be brief – unless the TikTok channel has a series of one-minute videos that delve deeply into a specific topic. Some TikTok developers will redirect you to their YouTube channels which they usually have longer videos where data may be explored in more detail.

TikTok should be seen as a platform for discovery rather than the last word on a topic. Regardless of what advice you get, you should get a professional to do it – be it a mortgage lender, a seasoned financial advisor, or any other trusted source.

Financial decisions are personal, so it is important to consider any advice you receive considering your unique lifestyle, income, debt, financial goals, and other factors. There is seldom a single approach to financial advice.