On multiple occasions we have heard and read bad information regarding what it takes to buy a home. Most often we hear the following…
- You need 20% down before you should consider talking to a realtor.
- You need a credit score of 800 in order to qualify.
- You need $50,000 before you can buy. With so much bad information swirling around, we understand why it can be discouraging to even attempt to buy a home.
Here are 5 myths that could be keeping you, or someone you know, from becoming a homeowner.
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Good credit, yes. Perfect credit, not necessarily. If you have some credit blemishes you still have options to buy a home. Most first-time homebuyer mortgages have a minimum credit score around 640. If you don’t know your credit score go to https://www.annualcreditreport.com/index.action to view your credit score once per year, for free. If your credit score is below 640, you can check out CreditSmart https://www.freddiemac.com/creditsmart/ Freddie Mac’s 12 module curriculum to help consumers understand, build and maintain better credit.
Answer: b. 3% (yes, only 3%)
While many “experts” tout putting 20% down to avoid paying mortgage insurance (MI), it may be worth it to pay the MI now and buyer sooner. With ever increasing rents and stagnant wages, it becomes difficult to save that 20%, keeping you perpetually on the sidelines, all while home prices and interest rate are subject to increase. https://downpaymentresource.com/dont-need-20-buy-next-home/
a. Cash out of your retirement fund
b. Move in with family or friends to save on living expenses
c. Have a garage sale
d. Use a Down Payment Assistance Program (DPA)
Answer: d. A down payment assistance program (DPA)
A recent study notes one in seven first-time homebuyers tap into their retirement funds to help with a down payment. Not a wise decision. Yet, only 3% of first-time homebuyers are turning to sources like down payment assistance. One such program is HOME+PLUS which provides up to 6% assistance to be used for the down payment and/or closing costs.
While you might not need help searching and viewing potential homes, you will need help executing contracts between you and the seller, negotiating a fair purchase price and setting up important things like a home inspection. Plus your Realtor’s commission is paid by the seller, so you don’t have an out of pocket expense. For additional guidance see https://www.bankrate.com/finance/real-estate/7-tips-for-picking-a-real-estate-agent-1.aspx
While many of the underlying mortgage types, Fannie Mae, Freddie Mac, FHA have guidelines and requirements that are the same regardless of the mortgage lender you use, each mortgage lender will have different levels of experience in navigating these mortgages. Plus, certain lenders are much better with first-time homebuyers
The home buying process is complicated. If you are not armed with enough knowledge it can lead to costly mistakes and added stress. Homeownership education courses can help you prepare for the home buying journey and are typically required when using a down payment assistance program. You’ll learn about the home buying process, improving your credit, mortgage terms, planning a budget and more.