For many families, owning a home is synonymous with the American dream, but it’s all too easy to feel intimidated about making the leap to buy one. That’s because there’s a lot of confusion out there—from how much you need to have saved to what types of mortgages are best—that could make you think it’s not in the financial cards for you, or just more trouble than it’s worth. Arm yourself with the right information, though, and the process will probably seem a lot less scary. Below are the home-buying myths we hear over and over again, coupled with smart advice to set the record straight. (Spoiler alert: Buying a home is probably more within reach for you and your growing family than you might think!)
Myth: You must have 10 to 20 percent saved for a down payment.
Reality: You may only need as little as 3 percent. Even with a steady income, saving for a down payment can be tough if you’re also chipping away at hefty student loans or credit card debt. But the good news is that if you’re buying your first home, or even your second, you could qualify for a low down payment mortgage. Talk to a mortgage lender to learn more.
Myth: Carrying student loans and other debt disqualifies you from getting a mortgage.
Reality: Your existing debts might be more of a speed bump than a roadblock on your path to homeownership. Lenders will look at your debt-to-income ratio, or DTI, to determine what portion of your income is needed to cover all of your monthly debt obligations. Your DTI is measured by dividing your monthly debt payments (including, but not limited to, student loans, car loans, credit card bills, housing costs and more) by the amount of your monthly income. The lower the number, the better your chances of qualifying for a mortgage. While most banks prefer to lend to those with a DTI of 43 percent or less, there are options out there for people whose DTI ratio tops out at 50 percent.
Myth: If your credit score isn’t excellent, you can’t buy a house.
Reality: It’s true that for most people, the higher your score, the better your interest rate is likely to be; typically people with scores of 720 and up nab the best rates. But even if your credit is less than perfect, you could still be able to qualify for a mortgage. Each lender sets its own minimum credit score, so it pays to shop around. The first step is to find out where you stand: You can get your free annual credit report at annualcreditreport.com to check for any errors or unresolved issues, and then start to work on raising your score if needed.
Myth: Renting is always cheaper than buying.
Reality: Depending on where you’re looking to buy, it can be less expensive to own a home. But unlike renting, you still need to account for ongoing expenses like maintenance, insurance and HOA dues (if applicable); luckily, there are tax deductions that can ease some of that burden. See more pros and cons of buying versus renting here.
Myth: The first step in buying a home is looking for one.
Reality: Before you start browsing listings and showing up at open houses, check out an online mortgage calculator to find out what you can afford and familiarize yourself with mortgage terms and processes. Then talk with a lender to understand your financing options and see if you can get prequalified. This will help you determine exactly how much money you can borrow, and a good lender will break down the types of loans best suited to your situation. Only after you get a sense of what you qualify for should you actually start house-hunting. When you do find a place you want to bid on, your real estate agent can help you navigate the homebuying process, which will include shopping for a lender and applying for a loan. In the end, when it comes to buying a home, the more prepared you are, the smoother—and less scary—the journey will be. Happy hunting!
The Bump and Fannie Mae present Home Within Reach a sponsored series that gives new families the lowdown on home-buying. Ready to become a homeowner? Find out about a low down payment option that could make it more affordable than you’d think.