Blog posted On March 02, 2023
Transitioning from being a renter to a homeowner can be very overwhelming with the amount of information that is available. Many times, it can be difficult to distinguish what is accurate and what is false. Some of the myths can seem like roadblocks that may prevent buyers from wanting to move forward, but we are here to set the record straight on seven of the most common homeownership myths.
MYTH #1: “RENTING IS ALWAYS CHEAPER THAN BUYING A HOME”
You may think you can’t afford a home, but you might be surprised. If you’re paying rent, you’re close! When you pay mortgage every month, most of that money is going into your home equity, which boosts your net worth and can be used in various ways. Plus, with a fixed-rate mortgage, your monthly payment will be the same for the life of your loan. Rent prices have a tendency to rise in price. If you’re a first-time home buyer, you may also be able to take advantage of special programs in your area that help with closing costs and provide down-payment assistance.
MYTH #2: “YOU SHOULD FIND A HOUSE FIRST AND THEN WORRY ABOUT A MORTGAGE”
Not only is this not true, but by believing in this myth you could miss out on a home altogether. Prior to looking at homes, you should get preapproved for a mortgage. This can help give you a better idea of which homes you can afford because it means your lender has reviewed your financial information and is willing to lend you up to a specific amount of money. Sellers like to see preapprovals; most won’t consider an offer from someone who hasn’t been preapproved because they don’t know if you can afford the home! Desirable homes are selling quickly, spending an average of 45 days on the market in October — eight days faster year-over-year and 21 days faster than in October 2019. With a preapproval, you can buy quicker.
MYTH # 3: “YOU SHOULD SPEND THE MAXIMUM AMOUNT YOU QUALIFY FOR”
You’ve worked out your budget and calculated how much home you can afford. You feel comfortable buying a home in the $400,000 range. You apply for a mortgage and get approved for $475,000. Should you bump up your budget? A lot will depend on how comfortable you feel with higher monthly payments. You may be able to make those payments, but it could come at a cost — you may not be able to save as much for retirement, put money into a college fund for your kids, or pay down credit card debt. There’s no rule that you have to spend the maximum mortgage amount for which you’re qualified. Your mortgage payments should complement your overall financial goals. Don’t feel the need to overspend.
MYTH #4: “A 30-YEAR FIXED-RATE MORTGAGE IS ALWAYS THE BEST CHOICE” More than 75% of borrowers opt for a 30-year fixed-rate mortgage – an attractive option that offers consistent monthly payments. But other options may be better suited to your goals. If you can afford higher payments, you can own your home outright in less time and for less money with a 15-year fixed-rate mortgage, which often offers lower interest rates. If you plan on selling your home in the near future, you can consider an adjustable-rate mortgage (ARM). The interest rate on an ARM will be fixed for a time before it becomes adjustable. However, once it starts to adjust, the rate can jump significantly.
MYTH #5: “YOU CAN’T PAY YOUR MORTGAGE OFF EARLY WITHOUT PAYING A PENALTY”
There was a time when paying a mortgage off early meant incurring a prepayment penalty. These fees were either a percentage of the loan amount or an amount equivalent to a specific number of monthly payments. In either case, they added thousands of dollars to your prepayment budget. Most lenders don’t charge these penalties anymore. The ones that do typically only levy the fee during the first three to five years after closing. You can pay the loan off without penalty after that period ends and you can pay extra toward your loan at any time. Paying your mortgage off early can provide a number of advantages, such as owning your home outright sooner, saving on interest and freeing up money for other purposes. When you apply for a mortgage, ask your lender whether there is a prepayment penalty and what the terms and conditions are if there is.
MYTH #6: “IF YOU’RE DENIED, YOU’LL NEVER BE ABLE TO GET A MORTGAGE”
Just because you’ve endured financial difficulties before doesn’t mean they will haunt you forever. Lenders do look at your credit history, but they also recognize and acknowledge the improvements you’ve made. What’s more important is being able to meet the minimum qualifications for the loan program you’re applying for. And if there are requirements you haven’t quite met, be prepared to speak to the actions you’re taking to get there. Like many areas of improvement in life, knowing where you’re going – in this case, the loan requirements – and having a plan to get there are the two most important pieces of advice you can follow.
MYTH #7: “YOU NEED PERFECT CREDIT TO GET A MORTGAGE”
Your credit score doesn’t have to be flawless to find a mortgage that fits your budget. Credit history is certainly one of the factors considered during the approval process, but an 800+ score isn’t necessary. Other factors besides your credit score also determine your eligibility for a mortgage. Lenders will look at your income, how much savings you have accumulated, your debt-to-income ratio and the size of your down payment. There are also many mortgage programs available to borrowers with lower credit scores. So if you have less than perfect credit, don’t give up on the idea of getting a mortgage. For instance, borrowers with credit scores as low as 580 can qualify for FHA Loans. VA Loans usually require a score range of 580 to 660, but lenders look at your whole financial picture. USDA Loans also have lower score requirements than Conventional Loans.
Do you think that you may be ready to make the jump to homeownership this year? Contact us today to get the preapproval process started!