Many people find buying a home exciting but scary. Most of us have heard what you should or shouldn’t do when you purchase a home. But don’t let the myths and misconceptions put you off. Buying a home isn’t as hard as they say.
You might have heard some of the myths below, but don’t worry, you may be more ready to buy a home than you think – visit this site to find out!
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You Need An 800 Credit Score
Many people believe you need a high credit score to buy a home. Lending standards indeed tightened after the housing crash of 2008 and 2009. But you don’t need flawless credit to get approved for a mortgage.
People with credit scores above 720 or 750 usually get the best rates, but you still can get a decent interest rate with a 640 or 680 credit score.
If your credit is so-so, consider an FHA mortgage. This is a government-backed lending program intended for people with lower credit scores. Many people get approved with credit scores between 620 and 680. And FHA interest rates compare well with conventional rates.
You Need 20% Down
Putting more money down is indeed better; you’ll have a smaller mortgage and lower payment. But it isn’t required for most people to put 20% down.
Fannie Mae and Freddie Mac programs are available with 3% down payments. FHA requires only a 3.5% down payment for most borrowers. If you apply for a USDA loan, you might even get 100% financing!
Note: If you put down less than 20%, you’ll probably need to have private mortgage insurance or PMI. This will be added to your mortgage payment and covers the additional lender risk.
You Can’t Afford To Own a Home
Do you pay rent every month? Then you may have enough income to handle a mortgage, depending on the house you buy. The best way to determine what you can qualify for is to talk to a mortgage lender. They’ll take a look at your finances and credit score and give you a rough concept of what you can qualify for.
You can also apply for a mortgage pre-approval to know how much home you buy. A mortgage pre-approval is helpful when you go house shopping. The real estate agent will know you can get approved for a mortgage.
Renting Is Better
Renting isn’t always bad, but owning a home is often better. Think about how much money you throw away on rent every year. All you’re doing is paying for your landlord’s mortgage. When you pay your home loan, the money goes into the property’s equity. That means you’re making a solid return on investment year after year.
Plus, after you pay off the loan, you own the home free and clear. No more mortgage or rent payments!
Remember that with a fixed-rate mortgage, your interest rate is locked in for years. You know what you’re going to pay this year and in five years. You don’t know how much it will increase next year or the year after that with rent.
If You’re Denied Once, You Can Never Get a Mortgage
It’s possible you can get turned down for a mortgage, but it’s usually due to credit score or debt-to-income ratios. You can boost your credit score and lower your debt and try again. It’s smart to start preparing to apply for a mortgage a year in advance. Pay down debt and pay everything on time so you have the credit score and DTI to get approved.
FHA Loans Are Only For Poor Credit Borrowers
FHA loans are a good option for people who cannot afford to put down 20%. You only need 3.5% down with an FHA loan. Plus, because it’s backed by FHA, you can get a very low-interest rate even with a mediocre credit score.
You Can’t Pay Off a Home Loan Early
Most lenders allow you to pay your loan off early, so we don’t know why so many people believe this! A few lenders have prepayment penalties, but ask your mortgage lender and steer you to the right loan.
You’re Always Best With a 30-Year Mortgage
There are no absolutes in the mortgage world. Many people prefer to get a 15-year loan because of the lower interest rate and shorter term that means thousands less in interest over the life of the loan. But you have to be able to handle the 30-40% higher payment.
You also might consider an adjustable-rate mortgage of 3, 5, or 7 years, if you think you will probably move before the rate readjusts.
Only Principal and Interest Matter
They’re important, but you also need to consider homeowner’s insurance and property taxes. Some states have high property taxes, such as New York, California, and New Jersey. Texas also has high property taxes as there is no state income tax. Property taxes can add $500 a month or more to your mortgage payment.
You Should Always Pay Off Your Mortgage ASAP
There are times when paying off other debts is the better move. If you have a car loan with a 7% interest rate and a mortgage with a 3% interest rate, pay off the car first. It’s costing you the most in interest. And if you have 15% interest credit cards? Pay them off as soon as you can.
A Bankruptcy Means You Cannot Get a Mortgage for 10 Years
This is just not true. It IS true that having a Chapter 7 or 13 on your credit report will prevent you from buying a home, but only for one to three years. If you show that you are reestablishing yourself financially and paying bills on time, there’s no reason you can’t get approved for a mortgage with a bankruptcy on your record.
When you’re getting ready to buy your home, it’s vital to understand the process to not worry about things that you shouldn’t. If you have questions, a mortgage lender can always help you understand your loan options more.