Buying a home for the first time can be intimidating. It’s unfamiliar territory. And with what’s likely the largest purchase you’ll ever make, the financial implications are significant. It sounds daunting, we know. But it doesn’t have to be. Securing a home loan is faster and easier than ever before, and with the variety of mortgage products on the market, you could find a loan customized to fit your specific needs. Here are five common misconceptions that may be unnecessarily obstructing your path to homeownership.
1. It’s too expensive.
Start by reviewing your financial standing—your current earnings, debt-to-income ratio and credit score. Factor in what you currently pay each month for rent and other living expenses. Then, use an online mortgage calculator to help you get an idea of what you can afford. Depending on the price and type of property, you could very well find a home where your mortgage is comparable to your rent. Best of all, as a homeowner, you’ll be building equity and could take advantage of tax breaks.
2. Pre-approval isn’t that important.
Getting a pre-approval from a trusted, respected lender is a simple but imperative step, particularly in a market when home prices are up, and inventory is down. As a buyer, you will need to formally apply for a mortgage either way, something that involves providing your lender with essential information so they can review your credit score and finances. Getting pre-approved before finding a home could make you and your offer stand out and enable you to make a strong offer on the spot.
3. You need 20% for a down payment.
If you feel you don’t have enough saved to buy a home, think again. While making a down payment of 20% or more allows you to avoid private mortgage insurance (PMI), there are still many options for borrowers with smaller down payments. For example, FHA home loans feature less stringent qualification and credit requirements, and down payment options as low as 3.5%.
4. 30-year fixed is the only way to go.
For buyers who seek a consistent monthly payment and want to settle into a home for the long-term, 30-year fixed rate loans are a wonderful option. However, adjustable rate mortgages, commonly known as ARMs, provide an opportunity to secure a lower rate and lower monthly payment for a 5-, 7- or 10-year “fixed period.” ARMs could be an ideal option for borrowers who don’t plan on staying in a home beyond this timeframe.
5. Homes in need of renovation aren’t worth a look.
If you find the perfect home in your ideal neighborhood, don’t pass it up just because it needs some work. There are financing solutions to help you customize and create the home of your dreams. Renovation loans are a smart, savvy way to package the renovation costs into your financing. Patience and flexibility may be required, but in the end, you could be on the affordable path to owning a home you love.
