5 Home Buying Myths
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The many myths that surround the home buying process don’t make the process any easier. Believing them to be true could keep someone from buying their first home or the home of their dreams, so we felt it was important to address these myths and bust them!
Top 5 home buying myths
Myth 1: You need to put 20% down
Busted! You have options.
Before letting that 20% down figure talk you out of making an offer on a home, know that there are home loans that allow you to put down as little as 3% and in some cases 0%.
0%-down loan programs are available for first-time homebuyers, Veterans, or those that qualify for the USDA program. In 2017, the majority of first-time homebuyers made a down payment of 0-6%, according to the November 2017 REALTORS® Confidence Index Survey.
Numerica offers a number of home loans to help you get the house you want!
Myth 2: You must be debt-free
Busted! Don’t let debt fool you.
In 2018, 26% of all homebuyers had a student loan, according to the Home Buyer and Seller Generational Trends Report. Other debts like auto loans and health care costs also factored into the decision making.
From student loans to credit cards, everyone has some degree of debt. Rather than letting your debt negatively affect your home buying decisions, know that accruing debt and showing the trustworthiness to pay it back is a crucial element of your credit score.
The bigger issue is to make sure your debt-to-income ratio is not too high. What is debt-to-income ratio? Take all of your monthly debt payments and divide the total by your gross monthly income. The ratio is shown as a percentage, and lenders use it to determine how well you manage monthly debts -- and if you can afford to repay a loan.
Before assuming that your debt will prohibit you from buying a house, meet with your lender or call one of the Numerica Home Loan Team Members to find out what your options are.
Once you know if you are in a good position to qualify for a home loan, keep in mind that a good rule of thumb is to keep your monthly house payment around one third of your income.
Myth 3: You need amazing credit
Busted! You are more than your credit score.
It’s true, your credit score factors into getting a better mortgage rate. However, even those with bruised credit could qualify for a home loan. Your credit score is part of your story, but it’s not all of you.
There are home loan options for people with credit scores between 600 and above. Moreover, each lender has their own criteria for approval, and while it is true that your interest may be higher if your credit score is lower, you may still be approved.
Talk with your lender and find your loan options. Remember, Numerica is committed to serving people and not credit scores. Numerica looks at your entire financial picture when approving you for your home loan.
Myth 4: Pre-Qualification and Pre-Approval are the same thing
Busted! Pre-qualification does not equal “I got the loan.”
While these two terms sound alike, they are different steps in the home buying process. Pre-qualification is the beginning conversation to determine what kind of loan you might be eligible for as well as an estimate of your budget. You walk away from pre-qualification with an understanding of how much money your loan may be approved for.
To pre-qualify, you provide your income, debt, and assets, which your lender looks at to determine your possible loan amount. It is not in-depth and does NOT consider your credit score. After pre-qualification, you and your lender can then look into the types of loans that will suit your financial situation.
Pre-approval requires a mortgage application, and your lender does a thorough review of your credit history and financial life to date. It will give you an idea of the amount you are able to borrow and the interest rate at which you could borrow that money.
Busted! This may be negotiated.
Closing costs are fees in addition to the price of your new home. They can include:
- Title insurance
- Lender costs
- Homeowner’s insurance
- Legal fees
- Lender’s fees
In many situations, the homebuyer actually pays the closing costs and the seller pays a portion of the title insurance and escrow or closing fee. That said, there are times when the buyer pays both of those.
In almost all cases, closing costs can be negotiated depending on the type of loan. With conventional loans, buyers may be able to negotiate with the home seller to have the seller pay up to 3% of the sales price, which would go towards closing costs. On FHA loans, that percentage may be increased to 6%.
When you’re looking at the purchase of your new home, please keep in mind that closing costs can total between 2-5% of the purchase price. These costs are typically added to your down payment amount, and all funds are due at time of closing.
Now that we’ve busted some of the top home buying myths, you might feel a little more curious about buying a house yourself. If you are, we suggest connecting with one of our Home Loan Team Members. They will take the time to find out what loans might work best for you and find out how much you could pre-qualify for. This will help you make an educated decision about one of the largest and most rewarding purchases of your life.
*All loans are subject to approval