Whether you’re a first-time buyer or not, there are common misconceptions regarding buying a home. These bits of “conventional wisdom” need to be busted once and for all! Here’s the list and our take on these myths:
1. You need a 20% down payment to buy a home
Not true – there are many lenders out there that work with 5% down on a conventional loan, 3.5% down on an FHA loan and even 0% down on an VA or USDA loan. All 20% down does is save you a couple hundred dollars, or even less, on your monthly payment through not requiring private mortgage insurance. You can, however, still get a mortgage without 20% down.
2. You need to have a 700 credit score to buy a home
False – there are quite a few loan programs for those with lower credit such as FHA loans that accept as low as a 580 credit score! VA loan programs are also more forgiving of less-than-perfect credit as they provide mortgages to veterans and active duty military.
3. You need to find your home first and then get financing after
No way – you always need to see how much home you can afford before you start house hunting! You can be looking at 150k homes and actually qualify for 250k – this would seriously waste your time as you will be missing out on homes that match your needs!
4. You must pay off all of your debts before applying for a loan
Bad idea – paying off all of your debts and closing your accounts will definitely impact your credit score, in some cases your credit score can show up as 0 if you have no active accounts open. It’s ideal to keep your credit lines open with no more than 30% credit utilization. This means if your limit is $1000 on one credit card, don’t have more than $300 balance due.
5. You must pay full asking price
Nope – asking price is what the seller would ideally like to sell the home for, however everything is up for negotiation. A home will only sell for as much as a buyer is willing to pay for it and for as much as it appraises for! That doesn’t mean you should offer $75k on a $125k home – you may lose out to another buyer and even insult the seller, especially in a dynamic market like ours.
6. You can buy a home without an agent
Not recommended – yes, you can buy a home without representation however you will want peace of mind in knowing that a licensed and experienced agent is negotiating on your behalf. Especially with new construction homes, the on-site agent represents the builder, they do not work for you. Don’t get lost in paperwork trying to do it yourself – buying a home is a major decision and you will want to have the right person in your corner.