Buying your first home is a big and exciting step toward your dream of building a solid financial future. With a lot to consider - credit score, down payments and mortgage rates - you don't want first-time homebuyer myths about the process to derail your goals.
A Google search can pull up good information, but it can also be difficult to distinguish fact from fiction.
We want to help by clarifying the truth behind some of the most common first-time homebuyer myths and misconceptions. After all, we know your home-ownership dreams are large … your confidence in the process should be too.
| Myth #1: All lenders require 20% down.
While a 20% downpayment is ideal, it’s certainly not a must-do. Overall, loan requirements differ by loan type. Some non-conventional loans make it possible to purchase a home with as little as 3 - 5% down.
For example, FHA Loans require a 3.50% down payment. Additionally, many states have lending programs offering down payment assistance. A lender or mortgage broker can explain all the options and help you determine which is the best for you.
It's important to note though that from a lender’s perspective, less money down means you’re a “riskier” buyer than those who put down a full 20%. As a result you will likely have to offset that risk by paying Private Mortgage Insurance (PMI) as part of your monthly payment.
| Myth #2: A buyer’s real estate agent isn’t necessary.
This is an important first-time homebuyer myth, as a good real estate agent brings a lot of value to the table. Your agent will be with you during each step of your home-buying journey. Accordingly, they will put your needs and goals first and ensure you understand all aspects of the process. The key is getting an agent who will:
- Educate you on current local market conditions
- Help blend your real estate expectations and wants with smart, resale-friendly reality
- Guide you to homes that fit your criteria
- Coordinate the work of other needed professionals throughout the process
- Negotiate your offer with the seller’s representative or sellers themselves (For Sale By Owner)
- Review post-sale contracts to ensure key deadlines are met
- Explain and help solve any bumps that may arise along the way
That said, your agent’s fee will be paid for at closing by the seller of the home you’re buying.1
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| Myth #3: You should be ready to buy before calling a real estate agent.
Hands down, the earlier, the better for contacting an agent to help with the purchasing process. Even if you’re in the early stages of browsing homes online, a real estate professional will be an invaluable asset up front.
For example, they can create a search for you in the Multiple Listing Service (MLS). This will enable you to receive notifications for homes that meet your criteria as soon as they hit the market, and the MLS is more up to date than popular search sites like Zillow and Trulia.
Setting up a search a few months before you’re ready to buy will give you a good idea of the homes available in your area and in your budget. To help you get started, KC Homes 365 offers a simple and easy Buyer Questionnaire -- just click below.
| Myth #4: Fixer-uppers are the way to go for limited budgets.
Thanks to HGTV and DIY networks, many people now confidently channel their inner Chip Gains for home repairs and updates. That trend may encourage buyers to seek more affordable fixer-upper homes that allow them to renovate their way to everything on their wish list.
But homes that need a lot of work typically also require a lot of money. Additionally, big renovations - like add-ons or a total room remodel - take much longer than post-production editing makes it appear on TV.
If you’re interested in a fixer-upper, ask your agent to show you newer and older homes. If you fall in love with an older home that needs work, get quotes from contractors first to determine impact to your budget. You may also want to consider a renovation loan to complete the work.
Don't let this first-time homebuyer myth pull you off course. Request a buyer consult today from a KC Homes 365 team agent - we’d love to walk you through options for new and fixer-upper properties.
| Myth #5: The down payment is the only cost you need to consider up front.
The down payment is significant, but it isn’t the only money you’ll need during the home purchase process. From a budget perspective, all financial commitments must be considered. Additional up-front costs include:
- Closing costs. Typically between 2 - 4% of the total home purchase price,2 closing costs include items like homeowners insurance and title fees.
- A new home inspection, which usually costs a few hundred dollars (higher or lower based on home size). Inspections take place prior to closing in case repairs are discovered that must be made by the seller.
- An appraisal. Your lender will have an appraiser determine the value of the home to ensure they don't loan you more money than the home is worth. Depending on the lender, you will either pay this when the appraisal is conducted or roll it into your closing costs.
| Myth #6: Your credit score must be high to qualify for a home loan.
You don’t need perfect credit to buy the perfect home, there are loans available to buyers with lower credit scores. These are good options for people who've had credit issues in the past. Be aware though that some of them come with additional fees and more than likely a higher interest rate.
Speak to a few lenders to talk through which options might be best for you.
| Myth #7: Student loans and other debts will prevent you from buying a home.
Some buyers may want to pay off existing debts before taking the leap into homeownership, but it’s not a requirement. When you apply for a mortgage, lenders will consider your debt-to-income ratio.³ to make sure you can afford your monthly mortgage payment along with other existing debts. (To calculate this on your own, add up your monthly debt payments and divide the total by your monthly income.)
If your income is high enough to allow you to make all your payments each month, having other loans will most likely not prevent you from getting a mortgage.
| Myth #8: The amount your lender approves should determine your home-buying budget.
It’s not uncommon for homebuyers to qualify for borrowing more money than is in their budget to pay back. Lenders will look at your income, debt, assets, credit score, and financial history to determine how much money you qualify for.4 This number might be higher than you anticipated because lenders tend to approve the highest amount they think you can afford. But that total does not mean that’s how much you should borrow.
Your budget - including how much you can afford in a monthly mortgage payment - should drive how much money you can comfortably borrow. An online mortgage calculator can be a good first step in determining this number. Remember to include the mortgage principal, interest, taxes, and insurance, plus ownership expenses like HOA dues and maintenance. Don’t fall victim to this first-time homebuyer myth and risk becoming house rich but cash poor.
| Myth #9: Location is the only factor you need to consider.
Home location is great to consider when evaluating school districts, commute times, and resale value. But you should also think about how the home will function for your family’s lifestyle. Factors such as number of bedrooms and bathrooms, whether the home will fit a growing family, etc. must be considered. If on a limited budget, you may want to sacrifice ideal location for more space or a newer home requiring fewer updates and less maintenance.
Your real estate agent is the local expert for buying and selling trends. They can help you find the balance between your budget, desired home size, and finding a home with good resale potential.
| Myth #10: You're certain to find a home with everything on your wishlist.
One thing popular house hunting shows get consistently right is that almost every buyer ends up compromising on something. Yes, the perfect house with every item on your wish list is likely out there, but also likely over your budget.
We recommend narrowing your list down to the top five things important to you, in order of priority. Note your absolute deal breakers - such as a fenced yard - along with “nice to haves” that you want but can live without.
This will be helpful when you begin talking with a real estate agent, who will use your list to find properties that might work for you. By coming to that first meeting with realistic expectations, you’ll start the process off on the right foot and be in your new home in no time. Our Buyer Questionnaire can help you get started!
| WE'RE HERE TO HELP
Whether you’re a first-time homebuyer or a seasoned homeowner, there’s no reason to go through the process without an advocate on your side.
The team at KC Homes 365 is here to answer your questions and do the hard work for you, so you can spend your valuable time dreaming and planning for your new home.
Get in Touch
Call us today to schedule a free, no-obligation consultation.
Sources:
1. Realtor.com -https://www.realtor.com/advice/finance/realtor-fees-closing-costs/
2. The Balance -https://www.thebalance.com/buyer-s-closing-costs-1798422
3. StudentLoanHero -https://studentloanhero.com/featured/student-loans-buying-house/
4. Zillow -https://www.zillow.com/mortgage-learning/pre-qualification-vs-pre-approval/