Debunking 10 Common Myths About the Home Buying Process
Options: Here to Help You Buy Your First Home
Buying a home is one of life’s biggest milestones. With money, time, and personal investment wrapped into the process of buying a home, it’s important to thoroughly research what you need to know as an aspiring homeowner.
Often, we glean information from a variety of sources: seasoned homebuyers, well-intentioned friends, online articles, and real estate forums. But with an overload of information, it’s difficult to discern exactly what’s fact and what’s fiction. Here at Options, we’re committed to helping you learn what you need to know about buying a home.
Myth #1: Pre-approval and getting pre-qualified are interchangeable
If you are considering buying a home, getting pre-qualified is a great tool to help you understand your budget. But it’s important to know that getting pre-qualified is not the same as pre-approval.
While getting pre-qualified gives you a budget estimate, the pre-approval process represents a more formal dialog with a lender. Pre-approval is a commitment to disclose all of the financial information that your lender will need to formally approve you for a home loan.
Myth #2: It’s okay to skip the pre-approval process.
Yes, it’s exciting to search through local listings on Zillow or Homes.com, but it’s imperative that you take the time to get pre-approved before you begin your search for a home. The pre-approval process is a necessary tool to help you understand how much home you can really afford, and what price range you should shop in.
Myth #3: You can stop worrying about your credit once you’re pre-approved.
It’s crucial to remain vigilant about your maintaining your credit, even after getting pre-approved for a home loan. Lenders reserve the right to monitor and check your credit at any point up until the mortgage closes. As you spend, consider that substantial charges will still be counted into your debt-to-income ratio viewed by the lender.
Myth #4: You need flawless credit to buy a home.
Speaking of credit, you don’t need perfect credit to buy a home. Yes, a higher credit score likely means lower interest rates; however, a lower credit score doesn’t immediately disqualify you from buying a home. If you can show steady employment or other adequate assets, you can still qualify for a loan – despite having less-than-perfect credit.
Myth #5: You need 15-20% down to buy a home.
Many people find saving up the once “standard” 20% down payment for a home to be a daunting and an impractical endeavor. Fortunately, most loan types do not require a full 20% down payment for a home. First-time homebuyers should explore all of Options’ loan programs.
Some loans, such as the FHA, require home deposits as low as 3.5%, making a home deposit infinitely more achievable for new or first-time buyers.
Remember: even with conventional loans, you can put down less than 20%. However, conventional borrowers whose down payment is less than 20% must pay for private mortgage insurance.
Myth #6: You don’t have a choice between different home mortgages.
Homeowners today can choose from a wide variety of mortgage options. As a prospective homeowner, it’s wise to talk to your real estate agent to learn whether you should opt for a fixed or an adjustable rate mortgage, or a conventional or a government loan.
Myth #7: It is better to rent than to buy.
In truth, dispelling this myth is subject to market conditions for the real estate market in consideration. While the short-term monthly cost of renting may seem more cost-effective, in the long run, buying a home may allow you to save a substantial amount of your income.
Further, as rental prices continue to rise in cities like Portland, having equity built up in your property is becoming increasingly desirable. If you’re curious about the cost difference between renting and buying in your area, check out this rent vs buy calculator tool.
Myth #8: Any lender will work for me.
It’s important to research your lender before you commit to buying a home. Finding the right fit matters, so be sure to solicit advice from friends and family to find a mortgage banker that you feel comfortable with. As you search for the perfect home, having someone who can identify red flags and clearly explain fees and risks is nonnegotiable.
Myth #9: Paying off a mortgage as quickly as possible is the way to go.
Often people hear that the faster you pay off your home, the less interest you pay on your home. Technically, this rings true. If you pay off your balance faster, you will spend fewer years paying interest on loans. However, lowering your principal loan amount does not impact your interest rate, and it’s not instant equity, either. Instead of rapidly lowering your overall loan balance, consider building a savings account or investing your funds.
Myth #10: A down payment is the only upfront cost of buying a home.
Buying a home is a cost-intensive process. Aside from the down payment, be sure to allocate funds for closing costs (typically 2-5% of the final home purchase price), an inspection, appraisal, and other third party costs.