Home buyers especially first-time home buyers many times have misguided beliefs about the requirements to become a homeowner. In this post, we are going to disprove some of the popular myths about home buying.
Myth #1. You need to have perfect credit scores to purchase a home.
Credit is among the list of factors your lender will review to determine if you qualify to buy a home. Having excellent credit isn’t required to become a homeowner.
Different home loan products have different credit score criteria.
A home buyer with fair credit score of 650 may be able to qualify for a government-backed FHA loan, USDA loan, or VA loan. Actually, with FHA you can have a score as low as 580 for a 3 1/2 percent low down payment.
A regular conventional loan requires a 620 or higher score. This is not considered a good credit score so the lender may want to see that you have paid all of your debts on time in the last two years. Speak with a mortgage professional for details.
Myth #2. You can’t get a mortgage if you have student loans
Don’t be discouraged if you have student loan debt of $50,000 or more. Lenders care more about your monthly payment for student loans more than how much you actually owe. You could owe $100,000 but your payment is only $100-$200/month.
Myth #3. Renting is always more affordable.
Renting is not always less expensive than buying a home. According to a Rental Affordability Report by ATTOM Data Solutions 2019, “purchasing a median-priced home in California is less affordable than renting a three-bedroom home.”
However, the report further mentions that Southern California rents rose faster than median home prices in Orange County, Los Angeles County, and San Diego County. Mortgage payments are fixed at a set amount and don’t change while landlords can raise the rent annually or once your lease term expires. So, the belief that renting will always be more cost-effective than buying is one that can be easily disproved.
Myth #4. You need to have a 20-percent down payment.
If you are in the camp believing you need to continue to save for a down payment until you accumulated 20-percent down, there’s some good news. The 20-percent down mantra is from decades past.
Government insured loans by FHA allow as small as 3.5 percent down. There’s conventional loan products which allow 3-percent down payments with mortgage insurance. Borrowers eligible for VA and USDA loans may get up to 100 percent financing.
Some loans allow your down payment to come from gift funds. Furthermore, California and some private organizations offer down payment assistance programs to help you by a home. Look for options when necessary.
Myth #5. Go look at homes first before you know your loan options.
It can save lots of time and money if you look for the right mortgage before you start searching for a home. Your mortgage lender should pre-qualify you first and then truly pre-approve you based on your verified income, monthly debts, assets, and credit history and scores.
Myth #6. It’s better to pay the full price the seller asks for.
As a final point, home list prices are flexible. Depending on the situation, you or your real estate agent can make an offer above or below the list price. After all, the appraised value should come in at or above the list price.
Myth #7 Contingencies cannot be changed
You may also be able to negotiate contingency periods. Specific repairs and other maintenance after your home inspection can be re-addressed after your offer is accepted. Examples of what can still be negotiated are the seller paying for a home warranty and the date of closing.
Using the services of an experienced real estate agent can help you figure out elements of the deal you want to negotiate. Now that these home buyer myths have been dealt with, speak with an agent or loan originator to get started.