7 Home Buying Myths: Debunked
It’s no secret the housing market has been a roller coaster the last few years.With the rent increases happening across the country, you might find yourself considering if now is the right time to take the plunge and buy a home. Naturally, you may turn to family and friends to help you weigh your options. However, there are a lot of myths that circulate about the mortgage industry. Don’t believe everything you hear – starting with these seven common homebuying myths.
The First Step is House ShoppingIf you go house hunting before understanding how much you are likely to qualify to borrow, you might be setting yourself up for disappointment. Before you connect with a realtor, consider going through a prequalification process. Through a prequalification, a lender will evaluate your income and credit information and provide you with an estimate for credit.
Once you have a better understanding of how much you can reasonably afford to borrow, you can begin to narrow your housing search. It is important to remember though that a prequalification is not a guarantee to lend, nor is the interest rate guaranteed. If your prequalification request is declined, you will receive information from the lender that will give you an idea of what you need to do to improve your credit worthiness.
It’s Cheaper to RentWhen comparing renting versus buying, the ‘better’ decision depends largely on your unique financial situation. While renting is a great short-term solution, buying is often cheaper in the long run. As a renter, you might have a lower monthly housing payment, but you may miss out on building equity in a home. Over time home ownership gives you an opportunity to realize a return on investment, whereas renting does not afford the same opportunity. For a side-by-side comparison of your options, use our rent versus buy calculator.
You Need a 20 Percent Down PaymentThe traditional “rule” of a 20 percent down payment may not be as common as you think. In fact, a 2022 survey found that 40 percent of recent buyers put down 20 percent or less . While a down payment of 20 percent is certainly beneficial in reducing the overall cost of your mortgage, it doesn’t have to be what keeps you from buying a home. Keep in mind if you don’t put down 20 percent, your monthly payment will likely increase to pay for private mortgage insurance (PMI) until you have enough equity – typically 20 percent – in your home to have it removed.
If putting down 20 percent is not feasible for you, there may be other options available from lenders including government-backed loan programs such as the Veteran’s Association (VA), United States Department of Agriculture (USDA), and Federal Housing Association (FHA), that offer lower down payment options to consumers.
An option unique to SouthState is our Buyer’s Advantage loan program, which makes home ownership accessible to qualified low-to-moderate income borrowers . With Buyer’s Advantage, no down payment or private mortgage insurance (PMI) is required, and up to 100 percent financing is available.
You Have to Pay Off Your Student Loans Before You Buy a HomeLots of first-time homebuyers believe they have to pay off their student loans before purchasing a home. While your debt-to-income ratio (DTI) can potentially hurt your chances of getting approved for more debt, properly managing modest debt builds your credit history and can demonstrate that you are a responsible borrower.
If you’re a newly licensed medical doctor, you may want to consider SouthState’s Physician Mortgage Loan program, which makes homebuying attainable for recent graduates. Due to the high-income potential of healthcare professionals, you may be able to obtain 100% financing without private mortgage insurance (PMI).
A 30-year Fixed Rate Mortgage is Always the Best OptionMortgage loans are not one-size-fits-all. When deciding which mortgage is best for you, consider many factors like how long you intend to live in the home, the amount of your ideal mortgage payment, etc. Although a 30-year fixed rate mortgage might offer you the lowest monthly payment, you will also pay more in interest than you would on a 15-year loan. Generally, longer repayment periods come with a higher interest rate. Also, in a rising rate environment, it might not make sense to default to a fixed-rate mortgage because the initial rate of interest is much lower with an adjustable-rate product right now. When rates begin to fall in the future, you may be able to refinance into a fixed-rate to lock in a lower rate.
You Should Choose the Loan with the Lowest Interest RateWhen you’re making a major purchase, especially one as large as a home, cost is always one of the most important factors. Choosing your mortgage and lender is no different. When shopping for mortgages don’t just compare the rates between various lenders. Instead compare the Annual Percentage Rate (APR) which gives you a better idea of the overall cost of the loan. And while the cost of the loan is certainly important, don’t underestimate other important factors such as finding a reliable partner who has your best interest in mind, will fight to secure your dream home, and will keep you informed every step of the way.
You Should Put Down as Much as You can to Lower Your Monthly PaymentIf you’re thinking about dumping your savings to make a large down payment, you might want to reconsider. While a large down payment gives you immediate equity in your home as well as lower payments, it might not be worth sacrificing long term financial stability. Continuing to maintain reserves will leave money for renovations, flexible monthly spending, or even padding your emergency fund.
In conclusion, buying your first home is a huge decision. A mortgage banker can share their knowledge with you and help you avoid costly mistakes resulting from common homebuying myths. Contact a mortgage banker near you today.
About the Author, Steve House: Steve currently serves as a Division Manager for the SouthState Mortgage group. He has worked more than 40 years in the mortgage industry.
1. 2022, Gobakingrates.com – Is 20% Still the Standard Down Payment on a Home in 2022? 2. Property must be applicant’s primary residence. If Property is not located in a Low or Moderate Income Tract or a Tract that is greater than 50.00% minority, applicant income must be 80% or less of the Estimated MSA Median Family Income Level.