Buying your first home might seem like a daunting task. For many, it is just as exciting as it is scary. Your first home will likely be your largest purchase to date, so it is only reasonable to approach with an air of caution. You have probably heard rumors and stories about what to do and what not to do when it comes to buying a home. However, do not let these mortgage myths deter you. At ALLIANCE, we are here to make sure you understand the bigger picture before you buy your first home! We have busted several common mortgages myths for you below.
Myth #1: I need perfect credit to buy a home.
The Truth: You may not have a perfect credit score, but that is okay. Not having spotless credit doesn't mean you are excluded from buying a home. While it is true that a conventional loan requires a score of at least 620, loans backed by the Federal Housing Administration (FHA) only need a score of 580 for approval. Your options are not limited to door #1 or door #2 either. You could always find a co-signer or agree to make a larger down payment help reassure your lender.
Your credit score is still a significant factor when buying a home. Your credit score also factors into the interest rate you pay on a loan. So, you are only doing yourself a favor by maintaining a higher credit score. You will likely save a lot in the long run if you ensure your credit score is in the best possible shape before buying a home. If you are interested in raising your credit score, then look at our previous ALLIANCE article.
Myth #2: I can't afford to buy a home.
The Truth: If you can afford to pay rent every month, you can likely afford to make a monthly mortgage payment. Talk to a qualified mortgage lender to find out how large of a mortgage you can afford. A lender can give you a quick, non-binding estimate, or prequalification, that may help you get an idea of how much money you can potentially borrow. Some lenders even offer a mortgage pre-approval. A pre-approval means that you have supplied enough proof of your debt, income, and savings. Once you are pre-approved, you will know exactly how much you may be able to borrow.
Myth #3: Renting is cheaper than buying a home.
The Truth: If you are paying rent for an apartment or a home, there is likely a mortgage in your price range. If you think you can't afford a home, think about all that money you are spending on rent. When you are paying for rent, you are paying for a service and that rent payment is categorized as a liability. When you are paying for a mortgage, you are reinvesting your money into your home's equity and that makes your home an asset. This means that year after year, you are receiving an increased real return on your investment.
Additionally, with a fixed-rate mortgage, your monthly principal and interest payments will be the same for the entire lifetime of your loan. This is in strict contrast to rent prices, which have been rising significantly, especially since the start of the pandemic. It could be cheaper to pay for a mortgage in the long run, given that rent has been increasing year after year.
Myth #4: I need 20% down.
The Truth: Putting 20% down when buying a home used to be the gold standard. However, those days have come and gone. While 20% down is ideal, most people don't have that much money to put down. The good news is that there are many programs available for borrowers who can't afford a large down payment. In today's market, most loans require less than 6% down. Most FHA loans only need 3.5% down and VA loan programs often don't require any money down at all.
Beyond that, several down payment assistance programs and grants can help you come up with the cash, especially if you are a first-time homebuyer. You will need to talk to your lender to see what programs are available in your area, but help is out there.
Myth #5: Refinancing a mortgage isn't worth the hassle.
The Truth: For many, the thought of going through the mortgage application process again can be stressful. Jumping through the hoops to get a mortgage can be tiresome, but the advantages of refinancing make reaching out to a lender worthwhile. Lowering your interest rate by even 0.5 to 1 percentage point can lead to life-changing savings. Consolidating debt, reducing your loan term, or cashing out equity in your home to pay for repairs are other reasons to consider a refinance.
Buying a home is more attainable than you might think. Chances are, if you can afford your rent, you are likely able to afford a mortgage. If you are interested in receiving a free consultation, stop by the ALLIANCE Home Loan Center at 8401 Quaker Avenue in Lubbock, Texas. Or, if your schedule is a little busy, you can always visit us online for more information!
