Common Misconceptions to Dispel With First-Time Homebuyers
08.23.2022 | Category: Homebuying
According to National Mortgage Professional, as much as 80% of prospective first-time homebuyers are concerned about saving for a down payment on a house. With historically high home prices, slow construction starts and rising inflation, it’s no wonder that would-be homebuyers find themselves wondering if now is the time to buy a house.
In addition, findings from a survey by LendingTree reveal just how little first-time homebuyers know about their options for financing. In fact, common misconceptions among more than 2,000 U.S. consumers ranged from how much was needed for a down payment on a house to what kind of credit score is required for approval on a mortgage loan.
Below is a summary of the most common first-time home buying myths and the facts to help you navigate the home buying process with your clients.
Myth: You need to have 20% down to have your offer accepted
Fact: You can put down as little as 0% in some cases depending on the type of loan you apply for. For example, if you’re a current or former member of the military, you may qualify for a VA loan. One of the most popular benefits of a VA loan is the option to finance 100% of your new home. This means no down payment required as part of the loan approval process.
Another option for homebuyers, without a full 20% down payment, is an FHA loan or a conventional loan with PMI. In many cases, homebuyers can put less than 20% down. As long as they’re willing to pay private mortgage insurance (PMI), which is required to offset the additional risk associated with the home loan.
After time, you may have paid down enough of the loan to have the opportunity to refinance and no longer pay PMI. Many homebuyers who aren’t sure they’ll be able to save 20% choose to go this route when buying a home.
Myth: You need a perfect credit to be approved for a mortgage loan
Fact: A credit score is only one factor to being approved and the credit rating needed to qualify varies on a number of factors including loan type, lender and amount financed.
One of the most important credit factors to consider when applying for a home mortgage loan is debt to income ratio. This is the amount of debt payments you have compared to your monthly income. For example, if you have a $500 car payment, a $1,500 student loan payment, and an income of $6,000 month, your debt-to-income ratio would be roughly 33% ($2,000 / $6,000 = 33%) - roughly the ideal amount most lenders will want to see prospective borrowers have.
Myth: You should only buy a house if you’re ready to live somewhere long-term
Fact: You should buy a house wherever you feel comfortable buying a house. No one can predict the future perfectly. And while many prospective homebuyers have the intention of living in their home long-term, most first-time homebuyers understand that their first purchase might not be where they want to live forever.
Condos, townhomes and other properties might be best suited to start building equity and real estate wealth. This can give homebuyers an opportunity to earn equity and eventually buy a home in their dream neighborhood.
Regardless of where you want to live, homebuyers should work with a reputable real estate agent that understands the market and how to best negotiate with sellers. A trustworthy agent will also help inform you about the neighborhood, the schools and local economy.
Myth: Homebuyers should wait for interest rates to drop back down
Fact: Interest rates are in fact still lower than historical highs. In fact, rates seen last year were never before seen and the rates many homebuyers see today are similar to those seen throughout the 2000s.
Even so, interest rates should never be the only factor helping you decide if now is the right time to buy a house. Homebuyers should focus on how much house they can afford and if now feels like the right time, Mutual of Omaha is here to help you get a competitive rate for your home purchase.
It's better to enter the home market as soon as you can to take advantage of securing a traditionally appreciating asset. If you’re ready to get preapproved for a mortgage loan, contact a Mutual of Omaha Mortgage loan officer or give us a call at 1-800-24-RATES.