There's a lot of information about applying for a mortgage and becoming a first time homebuyer, so it can be hard to tell what's right and what's wrong. Even more, some common myths make homeownership seem scary and out of reach. So we're here to settle these myths once and for all! FYI, Myth #5 is our favorite....
MYTH #1: You need 20% down to buy a home.
FALSE! This myth can make many people think twice about buying a home. 20% down used to be the norm, but there are so many other options these days. If you're able to put 20% down on your new home, great! Putting 20% down is the most financially beneficial option in the long run. But not everyone can afford to do that since 20% on a $300,000 home is $60,000 - a hefty sum of money!
Nowadays, banks offer all sorts of loans with different interest rates and down payment options. Most of the time, if you don't put 20% down, you'll need to pay PMI (private mortgage insurance) which is a small percentage of your loan that you pay each year. Some banks will offer no PMI options, but you might pay a higher interest rate.
Check out a few low down mortgage options with no PMI:
- TD Right Step Mortgage - offers a down payment as little as 3% with no PMI
- Navy Federal - offers $0 down for members with NO PMI (you'll pay "points" on the loan instead - a small % tacked onto the entire loan); if you know a family member or friend who is a member at Navy Federal Credit Union, they can refer you to become a member.
- VA Loans
MYTH #2: You only need money for a down payment.
False! What many first time buyers don't know is that there are many costs associated with buying a home, and a down payment is just the beginning. When you buy a home, there are several other costs involved:
- Inspection Costs - The national average for an inspection cost is $336, but your realtor may know a few quality inspectors for a good deal, so be sure to look around and don't settle on the first one you find.
- Appraisal Fee - The average range is $300-550, but will ultimately depend on the condition and size of the home and property.
- Closing Costs - These are typically 2-5% of the loan principal that you'll have to pay on closing day. Luckily, there is a way to lower what you have to pay out of pocket:
- If you're trying to avoid paying closing costs on closing day, you can negotiate a deal with the sellers to have them help pay your closing costs.
- Lender Fees - These fees vary by lender but may include:
- Application Fees - Averages between $300-$1000
- Loan Origination Fees - Averages between 0.5% - 1% of the total loan
- Underwriting Fees - Averages between $400-900
- Title Insurance - The average cost of title insurance is $1000 per policy, however, these vary by lender and can be found for much lower!
MYTH #3: You can only buy a home with a credit score of 700 or above.
This myth turns many people off to the home buying process. Many people think they need an excellent credit score to even think about buying a home - but think again.
Sure, a 700+ credit score will get you a good interest rate and loan. However, if you're below 700 (and we mean even sometimes well below), many banks will still give you a loan with certain stipulations (extra fees, higher interest rate, etc). Although you may still qualify for a loan, it's important to make sure that you can afford those extra stipulations set by the bank.
If you have a steady income but feel your bad credit will get in the way, don't fret. Start doing your research on low credit loans offered to those who can prove a steady income, but have unfavorable credit due to past conditions or circumstances.
MYTH #4: All lenders are the same.
This is very wrong! Many people think all lenders have the same rules and regulations when in fact, they're all different. While most mortgage processes are similar, each lender will have their own fees, protocol, guidelines, and rules. Huge corporate lenders often have too many applications to put in the time and effort to get to know each applicant, so it can be a less personal (and longer) experience.
On the other hand, smaller and local lenders will provide a more personal experience, and inevitably a smoother, faster lending process. Do your research, ask your realtor, and make sure you're using a lender that fits all your needs. When you're looking for a lender, you'll want to find a lending agent you like who seems to fulfill all your request and needs as a home buyer.
MYTH #5: You don't need an agent to buy a home.
This one is the WORST myth! We promise you'll regret not using an agent to buy (or sell) a home.
An agent is a professional just like any other. Would you count on a google search to fix a broken leg? Probably not. Professionals exist for a reason - they're the best at what they do and they know the topic inside and out. Using a real estate agent is your way of putting trust in a professional in that field.
A good agent will guide you through the entire home buying process and answer any questions you may have along the way. They find houses in your price range, with your wants/needs, but they also hold the key to some properties that aren't even on the market yet. Real estate agents can know about a home even before it hits the market, which may mean you can have access to an amazing home and property before anyone else!
Agents will also get you a better deal. Our agents know when they see a good deal and they know when they see a bad one. They know comps in the area and always have their buyers best interest at heart - so if you're looking for a good deal, they'll try to do whatever they can to make it possible!
Agents also do a large bulk of the work for you, so you'll stress less and have more time to take care of what's important to you during the process. When using an agent, you develop a relationship with them and discuss your wants, needs, and goals for your future home. They're responsible for keeping an eye out on the market and contact you when one pops up. Without a realtor, you'll spend hours upon hours searching homes on the internet that may not even still be for sale. You see, websites like Zillow, etc often have listings up that are already under contract. That means an offer has been accepted on that house and it's not really still available. You may have to shop around for one, bu do yourself a favor and use a good, FULL-TIME realtor!