The decision to buy a new home is an important one. There is a wealth of information about the home buying process on the internet, but it can be hard to separate fact from fiction. We are here to debunk some common home buying myths.
Myth #1 – You Need a 20% Down Payment
You may have heard that you need a down payment of 20% in order to buy a home. That is not the case. FHA loans require 3.5% down, and conventional loan programs only require down payments as little as 3%. Veterans, military service members and eligible surviving spouses can get mortgages with a down payment as little as zero. Additionally, WA state has a zero down loan programs for non-military buyers.
It is important to know that while paying less than 20% down will get you into a home sooner, it does mean that you will be paying to insure the mortgage. The average cost of Private Mortgage Insurance (PMI) typically ranges from 0.55% to 2.25% of the original loan amount.
Myth #2 – Your Credit Needs to be Perfect
It is true that your credit report is important to show you’re a reliable borrower, but contrary to common belief most lenders don’t require your score to be more than 700. In fact, many require a median FICO® score of at least 620 while FHA loans require roughly 580.
Myth #3 – It’s Expensive to Work with an Agent
In most cases, working with an agent costs buyers nothing as the seller pays both the listing and buyer agents’ commissions. The buyer typically pays no realtor fees. In rare cases, the seller is not willing to offer commissions to a buyer’s agent. Your agent can show you how to spot these types of listings.
Myth #4 – You Have to Pay Off Student Loans First
You do not have to be 100% debt free in order to qualify for a mortgage. Lenders look at how much you pay each month towards your loans and how your monthly debt compares to your monthly income. If you’re on an income-driven repayment plan, they can use your existing payment. Your first step is to apply for your mortgage loan and the lender will walk you through your options. Don’t forget, it’s free to apply!
Myth #5 – All Lenders are Created Equal
Rates can vary by as much as a percent depending on the lenders and some charge up front fees. Some have special access to payment assistance or local loan programs that can provide serious savings. Talk to several before committing — and look at third-party reviews for the lender you are working with, not just the company they work for. Over the years, we have worked with many lenders and have a collection of preferred lenders that we share with our buyers. We want them to get the best rate possible!
Myth #6 – The Down Payment is the Only Cost You Need to Consider Up Front
While the down payment is likely to be your largest cost, additional up-front costs include:
- A Home Inspection – Usually costs a few hundred dollars (give or take based on home size). Inspections usually occur within the first 10 days of the sale.
- An Appraisal – Your lender will have an appraiser determine the value of the home. Depending on the lender, you will either pay this when the appraisal is conducted or roll it into your closing costs.
- Closing Costs – Typically 3% of the total home purchase price, closing costs include fees for the services & expenses required to finalize a mortgage.
Myth #7 – Your Should Be Ready to Buy Before Calling a Real Estate Agent
If you are contemplating purchasing a home, your first step should be finding a great real estate agent. A real estate professional will be an invaluable asset up front. They can get you in touch with a trusted lender and create a search for you in the Multiple Listing Service (MLS). Your real estate agent will be your guide from the initial consultation until the day you get your keys. We stick with you every step of the way! If you have thought about buying a home, contact us for a free consultation!