Busting These Mortgage Myths: 4 Things You Need to Know
July 29, 2021
As a potential first-time homebuyer, you probably have quite a few questions about the mortgage process, which can feel overwhelming to many people. To complicate matters even more, some mortgage misconceptions have floated around for years, and these may have made you think that your homeownership dreams were out of reach. Fortunately, we are here to set the record straight, so read on as we debunk some of the most commonly accepted mortgage myths.
1. You Need 20% Down
Many first-time homebuyers wonder, “Can I buy a home without 20% down?” The myth that 20% down is required to buy a home is a long-standing misconception for first-time buyers — and for years, that was the case. However, many loan providers, particularly those that are government-backed, now only require between 3.5 and 5% as a down payment. If you can afford a 20% down payment, it can help lower your monthly mortgage payment, but it is unnecessary to buy a home.
Contact our team to learn more about government-backed loans.
2. You Need Excellent Credit
You may ask yourself, “What credit score do I need to buy a home?” The answer depends on the type of loan you get. While your creditworthiness is often evaluated by your FICO score, that is not the only factor your mortgage lender considers. Instead, they also weigh your income, debt, and other assets.
The government does not insure a conventional loan, which adheres to Fannie Mae and Freddie Mac standards. So, a conventional loan does typically require a higher credit score than an FHA or VA loan. For this type of loan, you will need a credit score of around 620, and if your score is over 740, you will be able to make a lower down payment and secure a better loan rate, which could be as low as 3.5 to 5%.
FHA loans are a good option if you have had past credit problems or have a high debt-to-income ratio. These loans are insured by the Federal Housing Administration (FHA) and generally require a lower down payment, sometimes as little as 3.5%, but you will need a credit score of at least 580 to qualify for this low down payment.
The US Department of Veterans Affairs insures VA loans, and if you qualify, these loans are ideal because they require no down payment and are offered to home buyers with lower credit scores. However, there is a funding fee that you will pay once that is dependent on your service branch and if you are contributing anything toward a down payment. As with FHA loans, this type typically requires a 580 credit score.
USDA loans offer 100% financing for qualified buyers and are attractive because this loan type does not require a high credit score or down payment. A property’s location is the deciding factor for this loan as it needs to be in a USDA-eligible area.
3. Renting Is Cheaper Than Buying
Many first-time homebuyers believe that renting is cheaper than buying because they mistakenly think that a large down payment is required, and they also consider closing costs and how much it takes to keep a home in good repair once they own it.
However, rent costs have steadily increased in recent years, and as a result, many rent payments are equal to or more than mortgages. When weighing the pros and cons of renting versus buying, one of the most significant advantages to homeownership is the equity you will create rather than building your landlord’s wealth.
Fact: 29% of renters’ income is spent on housing compared to 15% of income homeowners spend on a mortgage.
4. You Have to Have Been Employed a Long Time
Another mortgage myth is that you will not be able to qualify for a mortgage unless you have been in your job for at least 2 years. This is only true if you are a part-time worker or self-employed. If you are employed as an hourly or salaried full-time worker, you can buy a home after just 30 days on the job.
The Mortgage Firm Gainesville Is Here With the Facts
Now that we have addressed some of the most common misconceptions first-time homebuyers have about mortgages, if you still have questions, rely on your trusted team at The Mortgage Firm Gainesville.
We are a mortgage company passionate about providing you with the resources you need to make informed decisions throughout all of your home buying experience, including our easy-to-use home buying checklist and helpful articles.
Contact us today to learn more about mortgage options and how we make the home buying process less stressful for you and your family on your path to owning your dream home.