Six Myths About Home Financing You Don't Need to Believe
If you're a first-time homebuyer, the process of purchasing a house can seem intimidating and complicated. There's a ton of information out there, so it's easy to get overwhelmed. On top of that, a lot of the information is wrong. Below are six myths about financing a home that simply aren't true.
1) You Need an Absolutely Perfect Credit Score
Yes, you do need to have a decent score to qualify for a home loan, but that doesn't mean you can't get financing without a perfect score. Even a mediocre or mid-range score can get you a good loan or mortgage. Never assume your score is too low to get a conventional mortgage. You're always able to apply to any loan that you're interested in (though it's a good idea to talk to your bank or financial adviser about what options are open to you, to get the best possible terms).
2) You Need to Put 20% Down
The more money you put down on a home purchase, the better. The reason? The more equity you have in the home upfront, the sooner you'll be paying down the principal (rather than just interest) on your mortgage. In addition, a higher downpayment means you won't have to pay Private Mortgage Insurance, either. However, there is no minimum downpayment requirement of twenty percent -- it's just a recommended number. Don't think you can't get a home or loan just because you don't have twenty percent. Some loans, like the FHA home loan, require just 3.5 percent!
3) Thirty Year Loans Are Ideal
Many first-time homebuyers opt for a thirty-year home loan, but fifteen- and twenty-year loans are worth looking into. In fact, shorter-term loans can actually be better for your financial health because they'll save you a ton of money on interest payments. The downfall? Your monthly payment will be higher, but you'll save more in the long-run. Check your budget before choosing a loan type to find the best one for you.
4) The Monthly Payment is All That Matters
Most first-time homebuyers are only concerned with the monthly payment but it's important to keep maintenance, closing, insurance, and tax costs in mind. These all add up, so it's wise to take a look at the big-picture before you get in over your head. Your real estate agent will be able to provide these details, so you can understand the true cost of your home.
5) Buying is Better Than Renting
Though homeownership is part of the American Dream, it's not all sunshine and roses. As you may know, when you rent, you're not responsible for maintenance or fixing things, plus, renter's insurance is significantly cheaper than homeowner's. Additionally, if your credit is poor or your income is unreliable, jumping into a mortgage might not actually help your financial situation since you likely won't be able to qualify for loans with good terms. Consider renting before buying if you don’t feel financially ready for the commitment of owning a house.
6) Buying a Home is Always a Strong Investment
A home is one of the biggest purchases in your life, but that doesn't mean your real estate will go up in value. The real estate market or neighborhood can change at any moment or natural disaster could strike. If you’re worried about buying or selling, do some research or get training in some of the basics of real estate. According to Real Estate Elevated, flipping a house is not only legal, but recognized as a source of income. You can find resources for selling at Movoto, Realtor.com, and Trulia. Don't forget about the risks of investing in real estate and use your best judgement in your current market.
Now that you're aware of these six myths, you can make a better decision when it comes to buying a home for the first time.