Buying a home is not something you should take lightly. There are many misconceptions about the process that could lead to making costly mistakes. It’s important to know what you’re getting into before signing on the dotted line.
The truth is that people make these mistakes every day, and it can be challenging to recover from them once they’ve happened. Luckily for you, we’re here to help steer clear of these common pitfalls so that your home-buying experience is as smooth as possible.
Below are eight truths about buying a home that you should know before you start your search and shop for the best mortgage rates:
Truth #1: Your credit score is the most critical factor in getting approved for a mortgage
Many people think they can buy their dream home because they have lots of cash to put down, but it’s not as simple as that. If you’re trying to get an FHA loan, your minimum required credit score is 500, and if you go with a conventional loan, it all comes down to what the bank is willing or able to lend you.
Another thing that many people don’t realize is that when lenders say “your income,” they’re talking about all of your sources of income, including things like alimony and child support. Put yourself in a position where you’ll be approved for a mortgage by checking your credit score and ensuring you have all of your documentation ready to go before starting the application process.
Truth #2: You don’t need a 20% down payment to buy a home
This is one of the biggest misconceptions about buying a home. You can get a mortgage with as little as 3.5% down if you go through the FHA loan program. There are also conventional loans available with down payments as low as 5%, and even some programs that will let you put 0% down. Of course, the more money you can put down, the better off you’ll be in the long run, but it’s not mandatory to have 20%.
Truth #3: You don’t have to be a first-time homebuyer to qualify for a government loan
To get a government-backed loan like an FHA or VA loan, many people think you have to be a first-time homebuyer, but that’s not the case. As long as you meet the other eligibility requirements, you can get a government loan regardless of how many times you’ve bought a house in the past.
Truth #4: You can buy a home before selling your current one
This is another common misconception about buying a home. People often think they have to sell their current home before they can buy another one, but that’s not the case at all. You can buy a house before you sell your current one and then rent it back from the person buying your home.
Truth #5: The seller might pay for closing costs
If you’re going through a real estate agent who has experience with all of this, they’ll be able to advise you on how much the seller will contribute towards paying your closing costs. In some regions of the country, sellers are willing to pay up to 6% of your closing costs to get their houses sold faster. If not, don’t worry because other expenses besides just the down payment can be rolled into a mortgage.
Truth #6: You can determine if owning a home is right for you by getting pre-qualified and pre-approved
The only thing worse than buying a home and realizing you can’t afford it is purchasing a home and finding out that the bank won’t give you as much as you thought. It’s important to get pre-qualified and pre-approved before viewing homes so that there are no surprises when it comes time to put in an offer.
Truth #7: You don’t have to pay PMI forever once you own 20% of your home
If you buy a house with less than 20% down, then you’ll be required to pay PMI until the outstanding balance on your loan reaches 80%. This doesn’t mean that your interest rates will go up, though, because lenders take this issue when deciding what kind of interest rate to give you. Once you’ve paid down your loan balance to below 80%, then you can request that your PMI be canceled and start saving money each month.
Truth #8: You can buy a home even if you have student loans
Just because you have student loans doesn’t mean you can’t buy a home. There are plenty of lenders who are more than happy to work with borrowers with student loan debt. Just make sure that you’re prepared to make a larger monthly payment because including your student loan payments into your mortgage will likely increase your interest rate.
Buying a home is one of the biggest decisions any person can make, and it’s important to know all the facts before you make a decision. These eight truths will help you better understand everything about buying a home, and they’ll save you some money and heartache in the long run.