Buying your first home can be extremely exciting. Home ownership is a cornerstone of the American Dream, and for many people, it’s the largest financial investment of their lives.
While many adults become homeowners at some point in their lives, this doesn’t make any individual homebuyer an expert on the process- and there are a lot of misconceptions out there. Here are some of the most common that I’ve encountered (and debunked):
You Need a 20% Down Payment to Get a Mortgage
While it’s true that you needed a 20% down payment to get approved for a mortgage a few decades ago, the creation of FHA (Federal Housing Administration) Loans made lending to borrowers with lower down payments and credit score requirements much less risky, boosting home ownership and increasing the number of down payments below 20% of the home’s price.
You Need a 640 Credit Score to Qualify For a Home Loan
Like with 20% down payments, you used to need a 640 credit score to qualify for a home loan- but not anymore. Conventional loans still have fairly high credit requirements, but FHA loans are available to buyers with poor credit scores, and many lenders focus on whether you generally pay on time, have judgments or liens, and minimal collection debt when deciding whether to extend a loan.
Not Using a Real Estate Agent Will Save You Money
Real estate agents are so important to the home buying process that you can’t afford to not have an agent on your side. Home buyers don’t even pay for the agents’ fees, and every seller expects to pay a buyers agent commission. Furthermore, real estate agents help get you the lowest purchase price with their expertise and using comparables, and with contracts being long and difficult for the average consumer to comprehend, it’s crucial to have an agent by your side throughout the process.
Renting is Cheaper than Buying
With rent prices skyrocketing over the past few years, the cost of renting is often the same as the cost of a monthly mortgage payment. While there are higher up-front costs associated with home buying, buying generally becomes less expensive over the course of 4-5 years, on average. If you plan on staying in the same place for more than 5 years and you can afford a down payment, there’s no reason not to buy.
Renovating a Poor Home is Cheaper than Buying a New One
At some point in time, everyone has seen an HGTV show where someone bought an ugly home at a low price, invested in renovations, and turned it into their dream home. While this is appealing in principle, tearing down walls and completely redoing kitchens is more difficult and expensive than it generally appears on TV. It’s also common for people to plan to make needed upgrades and fail to follow through, due to the cost and inconvenience involved. When buying, make sure you like the house as it is- or close to it.
Source: The Lenders Network