These days, information on any topic is at our fingertips. The only downside is that it can be complex and challenging to sift through and get the real scoop. Buying a home is a big deal, and you’ll want a clear understanding of what to expect. Here we’ll help tackle some common mortgage myths you’ve probably heard so they don't stop you from buying a home.
6 Common Mortgage Myths & Tips for Buying a Home
Myth #1 - I Need to Come Up With 20% Down
The expectation of saving 20% of the price of a home can seem intimidating or impossible. However, this is not a must. For first-time home buyers, the median down payment is 7%. Listed below are a few tools that may help you with your purchase.
FHA Loans: The Federal Housing Association (FHA) helps first-time home buyers and others that qualify get a loan with as little as 3.5% down.
Government-Related Lenders: VA, USDA, and Navy Federal Credit Union loans are three government-related lenders offering as little as zero down mortgages. The VA is for veterans and family members; the USDA is for buyers in qualifying locations (typically rural); and Navy Federal Credit Union is for the military, family members, and some government employees.
Gift Funds: Friends and relatives have been known to gift money to help their loved ones secure a home. Talk to your lender to see if any limits or additional paperwork may be required.
Myth #2 - My Credit Score Is Too Low To Buy a Home
If your credit isn’t great, that doesn’t rule out your chances of buying a home. Here are some options.
FHA loan: If you have a credit score of 500, you can apply for an FHA loan. To offset the risk, you’ll need a 10% down payment. With a slightly better score of around 580, you may be able to participate in their down-payment assistance program, which may only require 3.5% down.
A higher down payment: If you have cash on hand, a higher down payment can help those with lower credit scores be less risky for lenders.
A co-signer. You may find someone with better credit to co-sign the loan – but understand that if you don't make the payments, the cosigner will be financially responsible (and their credit will also suffer - & likely your relationship).
Double-check your credit report. Order a copy of your report from all three reporting agencies (Equifax, TransUnion, and Experian) and look it over. If you find inaccurate or old information, contact the agencies to get it corrected.
Myth #3 - What if I Can't Afford the Agent's Commission
Don’t worry. Typically (in Missouri), the commission is paid from the proceeds of the sale via the seller. This is one of many reasons to contract with a buyer’s agent. The seller's agent doesn't work for you, and you need to have a pro in your corner.
Myth #4 - My Bank Will Give Me the Best Mortgage, Right?
Although seeing what your local bank can do for you may be a good idea, don’t just assume that’s the best option. There are several options, including credit unions and mortgage companies. Since rates aren’t the same across the board, it’s best to consider a few options to get the best deal.
You can also let the lenders come to you by working with a mortgage broker. They’ll shop for several lenders and may get a wider selection of loan options. It’s important to shop around for a broker (just as you would for a lender) to be sure they’re committed to finding the best deal for you.
Myth #5 - If I Was Pre-Approved, I Got The Loan!
Well . . . not really. Be prepared to go through these steps before assuming the loan is official.
The seller accepts your offer
Your lender approves the loan
You sign the loan papers
Several other things occur during this process, including the appraisal to ensure the home’s value is in line with the purchase price, checking your credit again, and asking you for more documents than you ever knew existed. (For real!)
So what good is a "pre-approval"? It gives you a little cred - showing sellers you're eligible for a loan and you're a serious, qualified buyer. This gives them confidence in your offer, increasing your chances of accepting it.
Myth #6 - All I Need is the Lowest Interest Rate
Yes, we all want low-interest rates. Just be aware of other things to consider. Check the annual percentage rate (APR) when shopping around for a loan. It includes the interest rate and all other loan costs, such as origination and processing fees that vary widely from lender to lender.
One loan may have a lower interest rate, but the up-front fees cost more than you'd save in interest. The APR lets you compare apples to apples.
Before you sign the loan, your lender will give you a loan estimate, a line-by-line fee estimate. You'll find the APR there. Use that rate to compare the loans you're considering.
Whew, I know we covered a lot! The main thing to know is you may be closer to owning a home than you thought!
It’s important to understand these common misconceptions when buying a home. That’s why working with a team of professionals can make your house-hunting a more enjoyable experience and the first of many beautiful memories in your home.
For more tips, check out these related blog posts:
Questions about real estate?
Do you have questions about your region's real estate market or market changes? We are standing by to help and answer any questions that you have. If you are unsure if it is the right time to sell or buy, you can seek help from experts who know the market. Our advisors will advise you on the right move for your family’s situation. If you are on a time crunch, you can seek counsel on how to best navigate the sale of your home during a buyer’s or seller’s market.