Purchasing can leave any first-time buyer’s head spinning as bidding wars break out and “sold” signs spring up in rapid succession. There’s a lot of information, and it’s easy to become discouraged with mortgage misconceptions fogging your vision.
For those first-time buyers ready to slip on the myth-busting gear, prepare to face off with the following mortgage misconceptions.
Myth # 1: You need a 20% down payment before you start shopping
Although it’s beneficial to have at least 20% down, it’s not a necessity. In fact, you can get a conventional loan with just 3% down.
Here’s the caveat: when you get a loan with less than 20% down, lenders usually require you to buy private mortgage insurance. This decision will make your monthly mortgage payment go up, but you will have fewer upfront costs.
Myth # 2: You shouldn’t buy in a sellers’ market
Much like the natural ebb and flow of life, the same concept applies to real estate. These highs and lows are better known as a “Buyers’ Market” and “Sellers’ Market.”
In simple terms, there are times when there are more homes for sale than buyers looking, and during those times, the market is referred to as a buyers’ market. On the opposite side of the spectrum, when house-hunters outnumber the homes for sale, the term “sellers’ market” best describes the situation at hand.
The trick to buying in a sellers’ market is to shop below budget and bid higher than the listing price to snag the house you want. A realtor can help you out with this.
Myth # 3: A notary isn’t necessary for the closing process
Part of buying a home is signing a bunch of papers and documents.
The lender hires a third-party notary, such as a mobile notary, who combs through all documents in the closing process, including the mortgage itself, deed of trust, subordination agreement, and affidavit of owner occupancy.
This legal expert ensures that every party signing the documents is who they say they are, preventing unsavory instances of fraud.
Myth # 4: As long as the mortgage payment is lower than your rent, you can afford the house
If you are used to renting, some of the costs of owning a home may come as a surprise.
Along with your mortgage payment, be sure to factor in property taxes, homeowners insurance. While utilities are usually included in monthly rent costs, homeowners are responsible for divvying up the money to cover monthly water, gas, sewer expenses. To make matters more expensive, routine upkeep taken care of by the landlord falls on the shoulders of homeowners.
Make sure you calculate those extra costs when you are determining how much house you can afford.
Myth # 5: A home inspection is not important
A home inspection is not a requirement in buying a home, but it is highly recommended.
Hiring a home inspector can be a pricey investment. These preventative measures can cost upwards of $600 or more for a complete home inspection, but it is worth every penny in the long run. These home inspectors can spot current or potential issues that can save you thousands of dollars later on.
With the inside scoop on faulty plumbing systems or structurally unsound foundations, you may even decide to pass up the home for another more affordable one.
Myth # 6: You need excellent credit to buy a home
Contrary to popular belief, you don’t need excellent credit to get approved for a home loan.
In fact, if your income is at least double the mortgage payment and your debt to income ratio is below 46%, your credit can be as low as 580, and you will still be qualified for an FHA loan.
Know the facts
Don’t let these common mortgage myths confuse or deter you from buying your first home. Knowing the facts will help the buying process go smoothly, especially if this is your first time buying a home.