Whether you’re a first time home buyer or a seasoned real estate investor, you’ve probably heard some of these myths regarding home buying. Here are 5 of the most common real estate maxims you’ll hear when buying a home and why they aren’t always true.
1. You need 20% down in order to buy a home. Although most conventional lenders require 20% down payment, that’s not necessarily true for others. There are many loans out there that cater to different financial situations. It is not uncommon for home buyers to be short when it comes to downpayment. You can buy a home with as little as 3% down payment or sometimes none at all! However, you have to take into consideration the risks and disadvantages of putting very little down payment.
2. You need an amazing credit score. A great credit score is usually equivalent to great mortgage rates. The lower the credit score, the worse the rates available become. And, if it’s really low enough, lenders might reject your application for a loan. But if you really want to become a homeowner, you have the option to repair your credit before buying a home. You can also apply for alternative loans with more lenient requirements, like a FHA loan.
3. Your income dictates how much you can borrow. Lenders analyze your whole financial situation. Although your monthly or annual income is a big factor when it comes to determining your loan amount, there are also other factors in play. For example, it might be more difficult to get a big loan for someone making $80,000 a year but with lots of credit card debt than someone who makes $50,000 with no debt.
4. The down payment is the only upfront cost to worry about. Although the down payment represents a huge chunk of the upfront costs, you also have to consider other expenses like closing costs. The total sum of the closing costs is usually equivalent to 2 to 5 percent of the total purchase cost. These expenses include attorney fees, appraisal fee, survey fee, inspection fee, credit report fee, etc.
5. Renting is cheaper than buying. This depends on the different factors including where you live and the current market conditions. However, recent research shows that rent prices are actually rising consistently. It comes down to your personal decision. Would you choose to pay a landlord monthly or pay your own mortgage monthly for your OWN home?