Home buying should be something you look forward to and are excited about. However, there are several home buying myths that keep people from actually committing to buying a home simply because of untruths that are floating around out there. That’s why we have compiled the most common myths about home buying and are going to give you the facts once and for all. Don’t let any of these home buying myths keep you from enjoying one of the greatest pleasures in life, which is owning your own home. Do I Need to Have 20 Percent to Put Down Before I Can Buy a Home?
Well, technically the more money you put down on a home the better off you will be and the more likely you are to be approved. Additionally, the more you put down on your new home will generally get you lower interest rates as well. However, with that being said, not everyone can afford to put 20 percent down, which means they would have to wait many years before buying a house. The good news is that, in most cases, you can get away with putting down less than 20 percent in exchange for paying PMI (private mortgage insurance).
The cost of PMI is usually minimal and you only have to pay for it until you have accumulated enough equity in your home, which is usually around 20 percent then you can have it removed. You just have to remember to keep up with that; otherwise, you will continue paying for the PMI longer than you need to. Typically FHA loans will require you to put 3. 5 percent down and a VA loan, which is for veterans, does not usually require any money down, if you and the property you are considering qualify.
Additionally, some lenders have begun offering piggy-back loans again for buyers who have excellent credit and a low debt-to-income ratio; however, those loans are usually at a higher interest rate. A piggy-back loan, which is sometimes called a second mortgage, is used to cover part of the down payment for those who don’t have 20 percent to put down. Do I Have to Have Perfect Credit to Buy a Home? Many people think they have to have perfect credit if they want to buy a home, but that is simply not the case.
However, the better your credit score is, the better rates you will receive. There are two credit factors, your credit report and your credit score, which are two completely different things. Your FICO credit score is what actually determines your creditworthiness and it’s based on your credit reports from the three major credit reporting agencies, which are TransUnion, Equifax and Experian. Credit scores have a range anywhere from 350 to 850. And generally anyone with a 720 or above credit score will usually qualify for a fairly good interest rate.
Additionally, first-time home buyers who apply for an FHA loan will generally qualify with a credit score of 620 or above. However, even if you have a lower credit score that is hovering around 580 or so, you can sometimes still qualify for a home loan via one of the government loan programs that are available. One thing to remember though is that if you have bad credit or a lower than favorable credit score, you will have to pay a higher interest rate for that loan. Is it Better to Get a Fixed-Rate Loan or an Adjustable Rate Loan?
One of the biggest myths out there is that it’s always better to get a fixed-rate mortgage; however, that’s not always the case. Fixed-rate loans are great if you plan on staying in that home for a long time. But if you will more than likely be moving from that home in anywhere from five to seven years or so, you might be better off choosing an adjustable rate mortgage or a mortgage that has a shorter term with a fixed rate in order to get a lower interest rate. This means you will need to think about how you anticipate your life changing in three years, five years and even 10 years.
Do you plan on having kids within that time, if so how many? Do you anticipate changing jobs during that time? There are many different factors that could result in your having to move; therefore, you need to think about this carefully before you make any decisions. If you don’t it could end up costing you thousands of dollars in the long run. What if I Can’t Afford a Mortgage Payment? There are many people who won’t even consider buying a home because they don’t think they can afford the mortgage payment.
However, if you can afford to pay rent, you can probably afford to pay a mortgage payment. All you have to do is make sure you buy a home that is within your means. And better yet, buy a home that is slightly below your means which will probably end up saving you money if compared to renting. When you rent, your landlord probably raises your rent every year and sometimes every six months, depending on your lease term. This is a very common practice no matter where you rent or who you rent from. However, most mortgages are on a fixed rate that won’t increase each year.
And if you have an adjustable rate mortgage, the rates for those loans are generally extremely low and are will probably end up being less than what you’re paying in rent. The Bottom Line Buying a home is the best way to build your credit while building equity at the same time. Whereas renting will do neither. Renting is simply throwing your money away and wasting time that could be used building equity. Therefore, if you can qualify for a mortgage, don’t delay when it comes to the home buying process. The sooner you get started, the sooner you will be enjoying your new home and experiencing the joys of homeownership.