Buying a home can be incredibly stressful. A little anxiety is normal; buying a house is one of your most significant investments. Fortunately, much of the worrying around buying a home is based on myth and misconception. With this helpful guide we’ve prepared for you, you’ll learn how to separate fact from fiction.
Myth 1: I Need to Save 20% for the Down-Payment to Buy a Home!
When people talk about making their down payment, they often mention something known as “the 20% rule.” The 20% rule refers to the belief that a 20% down payment is ideal or even necessary when closing on a home. If you, like many others, think this is the case, you may be worried about how to afford a 20% down payment. Fortunately for you, the 20% rule is a myth! For conventional loans, down payments can range from 3% to 20% or more. So if 20% is too high, you can choose to pay any amount between 3% and 19%.
There are benefits to putting more money down. Most lenders will give you a lower interest rate because the more you put down, the lower the risk to the lender. There are some loan options with down payments less than 3%, and some even with 0%. You may be better off with a lower down payment versus paying rent. Talk to a mortgage adviser today to learn more.
Myth 2: I Can’t Buy a House With Student Loan and Other Debt!
If you’re looking for a mortgage or wanting to buy a home, and you have a fair amount of debt, you may be worried about whether or not you’ll qualify for financing. Don’t fret! There’s no need to worry about not getting financing simply because you currently have debt or are paying off student loans. Although there is such a thing as ‘too much’ debt, what matters when applying for a mortgage is your ability to pay your new home loan and other debts. A lender’s underwriter will look at your debt-to-income ratio (DTI), or how punctual and consistent you are with paying off your debts. Your DTI is calculated by dividing your monthly amount due by your monthly income. If this ratio is above 45%, you may run into some difficulty getting a loan with favorable terms, but improving your DTI can be fairly simple. If you do find yourself with a DTI above 45%, try to pay any outstanding payments, cut costs where you can, or search for additional sources of temporary income.
Myth 3: My Credit Score is Way Too Low! I’ll Never Qualify.
Your credit score matters, especially when looking to get a mortgage. While it is essential for some programs, it does not mean it is the defining factor of your mortgage application. If you are concerned that your credit score is too low, you should start by checking it and checking it early. It’s especially important to know your credit score before making an offer. By checking it soon, it will give you and your mortgage adviser time to fix any defects.
A low score does not automatically disqualify you from receiving financing. There are many loan programs through government agencies, such as the FHA or VA, that have lower credit score requirements than conventional loans. These programs are designed with the needs of first-time or low-income homebuyers in mind, and as such have more lax requirements.
Some easy ways to optimize your score include correcting any errors on your credit report, paying your bills on time, and avoiding any new lines of credit (car loans, new credit cards, etc.) It is highly recommended you work with an experienced mortgage adviser to avoid any potential issues.
Myth 4: If I Need a Realtor, My Best Bet is To Ask Friends and Family For a Referral
As with most things, it feels natural to ask our friends and family for their input on important decisions. When looking for a realtor, however, this is not necessarily the best choice. While recommendations from friends and family may be a starting point, you’ll want to base your selection of a realtor on more than someone’s opinion. When looking for a realtor, it’s important to consider a potential realtor both as a person and as a professional. As a person, your realtor should be someone you trust, with a personality that makes you feel comfortable. As a professional, they should not only be well-organized and practice professionalism but also provide insight to help you buy the home you want. You’ll need someone who has an understanding of the local housing market and knowledge about the kind(s) of homes you are considering.
We recommend reading online reviews as part of your realtor selection process. Another option may be to speak to some past clients. Most realtors will be happy to oblige if you ask, it shows you are a serious buyer. Take a look at past closings, do any match the type of home you are looking for?
If you need some recommendations, we would be happy to help. There is never any obligation to work with a realtor that we or anyone may recommend. Pick the person who earns your confidence. Save some time and energy by considering a realtor vetted by us.
Myth 5: If I Don’t Use a Realtor, I Will Save Money!
Many people shy away from getting a realtor for fear that having one is too expensive, thinking that they’re better off not getting one and should save their money. What most borrowers or buyers don’t realize, however, is that they typically don’t even need to pay for a realtor’s services – the seller does. The seller usually pays a realtor’s commission. So as the buyer, you spend the same amount for the house regardless of whether or not the realtor is there. Additionally, having a realtor could even save you money if they help you negotiate a lower price with the seller. Furthermore, a good realtor will help you with making offers that benefit you.
Myth 6: An ARM Sounds Too Risky. 30-Year Fixed is the Best Option For Me!
If you’re looking to buy a home, you’ve likely heard of two common mortgage options: 15-year and 30-year fixed-rate mortgages. While these are the most popular and typical choice, fixed-rate loans aren’t the only or even the best option. The best choice is choosing the mortgage that will fit your needs.
Whereas a 30-year mortgage loan has one fixed interest rate throughout its lifetime, an ARM starts at a fixed rate, switching to an adjustable rate after a specified amount of time. Fixed-rate mortgages can offer some sense of stability to your debt-paying life, but they also tend to come with higher interest rates. With an ARM, you could have a standard rate for 5 or 10 years and then switch to an even lower rate, if market conditions permit. Most ARMs are 5 or 10 years fixed; once your rate becomes adjustable, it will adjust itself a certain number of times annually (usually just once) within a set range. While an ARM comes with drawbacks of its own, in many cases it’s the better choice than a 30-year fixed-rate mortgage. An ARM is usually a good choice if you plan on moving in the next 5 years.
Myth 7: Buying a Home Is Too Expensive. I Should Rent Instead!
When considering whether to rent or buy a home, renting may seem like the cheaper option. Although rental payments may feel more manageable than monthly mortgage payments, this is not always the case; it also doesn’t mean renting a home is cheaper overall. It’s helpful to think of renting as a short-term option, and buying a home as more of a longer-term investment. Renting isn’t always cheaper, and over time it can become more expensive than buying a home, especially if one considers the opportunities for a return on one’s investment. As always, renting and buying each have their own pros and cons, and one option will not be the best for everyone.
Myth 8: I’ve Saved Up Enough Money to Cover My Down-Payment and That’s All I Need To Do!
There are a variety of costs that come with purchasing a home, and a down payment is one of them. If you’ve saved money to cover this important cost, that’s great! You should be aware of the other costs of buying a home, some of which may vary depending on the lender you select. In addition to your down payment, you should be prepared to pay for lender’s fees, title and escrow fees, and pre-paid fees. Most lenders have an underwriting fee which can vary from lender to broker to bank.
these hard costs: appraisal, escrow settlement fees, lender title fees, and lender’s underwriting fee. homeowner’s insurance. Depending on the type of loan you choose or qualify for, you may also pay HOA. You will also pay homeowner’s insurance fees, HOA fees if applicable, as well as any utility fees (also known as utility adjustments) that the seller may ask of you. This is not intended to scare you! Although there are many different fees that can crop up throughout the course of purchasing a home, they can often be negotiated down and need not be a surprise if you manage your finances effectively. Continue saving as you have been. With money already set aside for your down payment, you’re off to a great start!
We’ve just run through some of the more common myths and misconceptions about buying a home. Although there are certainly more out there, the above guide should help to ease any unwarranted fears you may be having about purchasing a home. Here at Candor Mortgage, we’re committed to providing you with as stress-free a home-buying process as is possible. Ready to get started? Connect with us today!