Home buying is a huge undertaking, there’s no doubt about it. It’s possibly one of the biggest steps people will ever take in our financial lives. With home buying already being such a weighty experience, the last thing we need is a slew of home buying myths haunting our dreams and affecting our decisions for no reason. Let’s take a look at seven of the most common home-buying myths.
Myth 1: You Need a 20% Down Payment
Gone are the days when a whopping 20% is an unquestioned requirement for home buying. This throws back to the days of young families saving up for many years in order to even dream of taking that first step towards home buying. While having a down payment of 20% may be the gold standard, and a formidable goal with benefits of its own, it is far from a requirement for buying a first home. There are many types of loans available that create a scenario where a much lower down payment is required. FHA insures loans that have down payments closer to 3.5 percent. There are also VA loans for those who’ve served in our military which often require no down payment. Sometimes even conventional loans only require 3-5% percent down payments. A larger down payment can lower your monthly mortgage bill and save you money on interest, but it’s certainly not the only path to homeownership.
Myth 2: It’s Cheaper to Rent than to Own
Another common home buying myth. While there are times when it can be cheaper to rent than to own, there are just as many situations where a mortgage payment can save hundreds a month compared to renting. This varies depending on geographical area, and of course depending on home-owning expenses such as renovations, repairs, and other payments such as taxes and insurance. Often a home purchased at a favorable interest rate will come out to lower monthly payments., especially in metro areas or areas where rental demand is high such as college towns or when downtown locations are hard to come by.
Myth 3: You Need a Perfect Credit Score
Getting your credit checked for a home loan can be intimidating, to say the least, but don’t let this myth stop you from finding out your options. While credit scores are an important factor in home buying, the number on your FICO score is not the only factor. Many things go into generating a credit score, and some hold more weight than others. A higher credit score can translate to a lower interest rate, decreasing the cost of your loan over time. It can also help you qualify for specific types of loans and with specific lenders. But having an imperfect credit score is something that can be corrected over time, and is really just a starting place. Find out what makes your score more competitive and what to focus on in this article.
Myth 4: It’s Cheaper to Buy a Fixer-Upper
Fixer-uppers may seem like a more affordable option upfront, but all too often we are biting off more than we can chew. Problems can arise that were not budgeted for, leaving our investment amount more than what makes sense when it’s all said and done. A well-maintained home that fits within our budget can often prove to be a better investment in the future and require a lot less out-of-pocket expense.
Myth 5: You Must be Debt Free First
Lenders aren’t looking for zero debt, they are looking for a manageable amount of debt. Factors that lenders take into consideration are the overall debt load compared to income amount, called debt-to-income or DTI. They factor in things like Principal payment, interest, taxes, and insurance (also known as PITI) and compare that to the gross income of the borrower. Generally, they like to see that debt equal about 28% of the gross income, or 36% of all overall debt and monthly obligations.
Myth 6: The Listing Price is a Suggestion
Some buyers are under the impression that a listing price is a mere suggestion and tend to believe that they have a good chance of purchasing outside of their approved budgets by making lowball offers. While we all love a bargain, listing prices are calculated based on real factors. Before a listing price is chosen, many important things have been considered, including the local area, the current market, similar properties, the value of land around the property, and much more. While there is room for negotiation, the listing price is usually a good indication of what a property’s actual value is. In a market like what we are currently seeing, offers need to be competitive. Find out more about why buyers are paying above purchase price by clicking here.
Myth 7: All Lenders are the Same
It’s tempting to think: a loan is a loan. This, however, is far from true. While loans may be found in many places these days, some are much more reputable and solid than others. Financing terms and the overall loan process can vary quite a bit from lender to lender. Some companies are quick to issue pre-approvals without verifying the borrower’s information, creating a false sense of confidence for the buyer, and often a questionable offer to purchase for the seller. Read more about the importance of finding a reputable lender here.
Hopefully, these common myths about purchasing a home won’t stop you from pursuing your dream of owning a home. Instead, we hope that as you become better informed, you can leverage this knowledge in ways that increase your odds of approval and improves the quality of your overall buying experience. At Path and Post, we are here to guide you through all of your real estate transactions. Check out our home buying guide for more information and contact us today to get started.