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Getting ready to make the leap from renter to homeowner can be exciting. However, you may also feel overwhelmed by the prospect of applying for loans and finding the right home for your family. It doesn't help that first-time homebuyers often receive a lot of misguided advice from well-intentioned friends and family, making it hard for them to sift through what is fact and what is fiction about the home buying process. To help you feel more prepared as you look for your first home, keep reading as we take a look at some of the most common misconceptions first-time homebuyers have about the process of purchasing a home.
You Must Have a 20% Down Payment
One of the biggest home buying misconceptions is the belief that you cannot buy a home unless you have at least 20% for a down payment; this is simply not the case. While many people see a 20% down payment as ideal, as this allows you to avoid paying Private Mortgage Insurance (PMI), the fact is that many lenders offer home loans with as little as 10% or 5% down. You may even qualify for an FHA loan that only requires a 3.5% down payment.
You shouldn't let your inability to put 20% down towards the purchase of a home get in the way of your dream of homeownership, you just need to be prepared to pay PMI. PMI generally costs between 0.4% to 2.25% of your mortgage annually. However, PMI can be removed down the road once you have paid enough of the loan's principal.
A Down Payment Is the Only Up-Front Cost
When determining how much you need to save before you can afford to buy a home, it is important that you take into account all of the up-front costs that come with buying a home. Contrary to popular belief, a down payment is not the only upfront cost associated with buying a home. You will also need to be prepared to pay for a mortgage application, loan origination fees, title insurance, escrow fees, real estate taxes, inspection fees, and you may be responsible for closing costs. It is important that you talk about all of these costs with your lender, as they can help give you a better idea of how much you may need to have up-front to buy a home.
Your First Step Is to Look at Houses
One of the biggest mistakes first-time homebuyers make is looking at homes before talking to lenders. There is a common misconception that you should find the house you want and then get your finances in order. However, this could lead to heartbreak if you find a home that you love only for someone else's bid to get accepted before you even have time to talk to your bank. Taking the time to research lenders and get pre-approved for a loan before you start looking at homes will ensure that you are prepared when you find the right property. This will also give you a better idea of your budget and what price range you should be looking at when researching listings.
You Need Perfect Credit to Buy a House
Another common misconception is that you need to have perfect credit in order to qualify for a mortgage. While lenders do take your credit score into consideration when looking at your loan application, they also consider other factors such as your income, outstanding debt, savings, assets, and other investments when determining if you qualify for a home loan. This means that you are not automatically disqualified from buying a home from all lenders if you have bad credit. However, it does help to try to improve your credit score before applying for home loans, as this can help you qualify for a lower interest rate.
Navigating all of the misconceptions surrounding buying a home can make this process overwhelming for first-time buyers. Fortunately, you do not have to go through this process alone. If you are looking to buy your first home and aren't sure where to start, consider reaching out to one of our expert loan officers to talk about the home-buying process and what programs you may be eligible for as a first-time homebuyer.