3 Common Home Buying Myths
We all know the home buying process can be complicated, confusing if you aren't familiar with it, and tricky. For these reasons, we want to educate buyers so that mistakes and regrets are avoided.
There are various misunderstandings that we’ve all come to know as truth in regards to the home buying process. But, we are here to give you good news!
More often than not, the “facts” you’ve heard that may scare you away from purchasing a home are not always facts!
Some of these myths might either make homeownership seem too far fetched or it may make it seem too easy and set you up for financial distress. We want to set the record straight for these three common home buying myths.
1.You need a perfect credit score
Although this is true for some home loans, it is not the case for every loan. If you have a knowledgeable lender who has your best interest in mind, they will take a look at your situation and lay out all of your options.
We say options, because there are many different options for those who have lower credit scores!
You can either start working with a credit repair agency that will show you that it is possible to improve your credit and do so in a doable time frame.
Or, you can look into each loan which accepts lower credit scores and what their requirements are. You’ll need to make sure you’re informed about any fees or costs that will be required due to your lower credit score, if you will have a higher interest rate, or higher down payment.
If you are a military service member with a lower credit score, the VA loan will still be a fantastic option for you and will still have minimal upfront costs.
Here are some loans you should ask your lender about:
- FHA Loans (not just for first time home buyers! This is another common myth)
- VA Loan - For military service members and their families
- USDA Loans - Buying an older home? There are many options for you that will give you the opportunity to buy a home AND receive renovation funds to make it either more up to date or make it “liveable” if there are many repairs that will be needed
- Freddie Mac Home Possible
- Fannie Mae HomeReady
- Non-Qualified Mortgages
Don’t take “no” for an answer if you have a dream of being a homeowner! There are plenty of options for you, it just takes a little digging.
2.You need to put 20% down or more
Similar to our first point, there are different options for mortgages. If you do not have 20% to put down, you don’t have to do that.
If you would like to put less than that down, you will add PMI onto your mortgage until you have reached 20% equity in your home. This is when your PMI will typically fall off of your monthly payments. This is usually done with conventional mortgages.
Other loans like the VA loan and FHA loans can often require low down payments of 3.5% all the way down to zero.
Keep in mind, the lower your down payment, the higher your monthly payment will be and sometimes your interest rate.
3.You only need to pay a downpayment upfront
As we mentioned in the beginning of this blog, there are some myths that will set you up for financial distress.
What exactly does that mean?
It means that you will enter into the buying process with the mindset that you’ll pay x-amount of money out of pocket, when in reality you will be paying more than that amount.
Many buyers assume that their only upfront cost is a down payment. This is not the case. A down payment is one of the upfront costs you may be responsible for, and there are various others you should be financially prepared to pay for. This doesn’t mean that you will absolutely have to pay these costs, but if you do not prepare for the possibility you may be forced to pull out of the transaction as it progresses.
Some of these costs include:
- Closing costs - these can be 2-5% of the purchase price. You can request that the sellers pay some or even all, but remember that you want your offer to be competitive, so choose wisely!
- Earnest money deposit/Good faith deposit - This is an amount of money that is typically 2-5% of the purchase price (much like closing costs) but instead you deposit that money upfront to gain trust from the seller. Showing them that you are serious about buying their home and you won’t back out. This amount of money can be counted toward your overall down payment though! When you are figuring out how much you want to spend as a down payment, take into consideration that 2-5% of that should be used as the earnest money deposit.
- Repairs/Improvements - After inspections have been completed, there may be repairs that have to be done before the transaction can close. These repair fees will be negotiated between realtors but you ultimately need to be able to pay those costs if need be. Repairs are also not always required. If you see a repair that you would like completed before the close of the sale, you can request that the sellers pay for these repairs, but they can refuse. If it’s important for you to have those repairs done, make sure you have available funds to fix them!
- Lastly, being a homeowner means that you are the landlord! If an unexpected expense pops up right after buying the home, you are responsible for it. Having 3-6 months of expenses saved can save you from stress and poor living conditions. Being prepared for this big purchase is crucial and it’s also possible if you take your time to set yourself for success!
There are many home buying myths and we have barely scratched the surface here, but this will give you a good start to understanding what is possible in your future.
Speaking with family and friends is great for initial steps toward buying a home, but speaking with professionals who can bust myths like these for you is always your best option.
Once you have made the decision to buy a home, make sure you know all that is in store! Take a look at our Homebuyer Education course to see if it is the right next step for you.