We’re all spending more time at home these days, so it’s natural if you’ve started thinking about a new space to make your own. For those who think that owning a home is out-of-reach, here are four common home buying misconceptions and ways to think differently about the process.
Myth #1: My Credit Has to Be Excellent to Get a Mortgage
Your credit score is a number between 300-850 that lenders use to determine the risk involved with lending you money to purchase a home. Not only does this number determine if a lender will let you borrow money, but also the amount, terms, and flexibility the lender will offer you.
A credit score of at least 620-640 is generally required for traditional mortgages. The same is currently true for government-insured mortgage programs, like FHA, and VA.
Find out your credit score by requesting a free copy of your credit report from each of the three major credit reporting agencies at www.AnnualCreditReport.com.
Myth #2: I Need 20% Saved for My Down Payment
Many people think you need to have a down payment of 20% when home buying. But the truth is a 5 percent down payment is typical for many first-time buyers. Putting less down can let you save for other priorities like building your emergency fund or paying off debt. Keep in mind that the more you put down upfront, the lower your monthly payment will be. With a larger down payment, you can also avoid Private Mortgage Insurance (PMI).
Myth #3: There Aren’t Any Programs to Help First-Time Buyers With Down Payments
Did you know that there are down payment assistance programs offered by state and local housing authorities? They can help cover down payments, closing costs, and other fees associated with the purchase of a home. These programs are generally for first-time buyers, but if you have owned a home in the past, you may still qualify. These programs typically define a first-time buyer as someone who hasn’t owned a home in the past three years. Talk to a loan officer in your area who can provide a sense of which program might be best for your particular circumstances.
Myth #4: The Down Payment and Monthly Mortgage Amounts Are the Only Things I Need to Worry About
The truth is there are more expenses you are going to be looking at when owning a home. For instance, Property Taxes and Homeowners Insurance. Online calculators come in very handy to get a full view of what your true monthly expenses will be. They’ll help you gauge how much home you may be able to afford. While they are a great estimate, remember that they are not as valuable as a professional analysis. Your mortgage lender can help you estimate your true monthly budget needs, based on your particular situation.