If you’re financially in-tune, you’ve probably heard money gurus rave about how smart it is to invest in real estate. Andrew Carnegie, a famous American philanthropist, once said that 90% of millionaires get their wealth from real estate investments, and this has held true over the past couple of centuries; in the right market and location, your property purchase can greatly increase in value. Not only that, but you also get tax breaks, build equity, and diversify your investment portfolio as a homeowner.
Unfortunately, due to many widespread misconceptions about homebuying, many people overcomplicate the process in their minds. They wait around for “the perfect time and conditions” to buy a home, telling themselves they must meet impossible standards before starting the process.
Investing in real estate doesn’t have to be that hard, and a lot of the popular rumors flying around simply aren’t true (if they were true, how would so many people be able to buy homes?). Loan Remedy is here to dispel those rumors and make it easy, simple, and enjoyable to search and find a home you love so you stop denying yourself the benefits of property ownership. You may be surprised that owning a home is a lot less painful and difficult than you originally thought.
Have questions? Get answers from an expert.
Misconception #1: You have to be debt-free to buy a home.
Homeownership would be virtually impossible if you had to be totally debt-free to buy a house. During the approval process, lenders consider your debt-to-income ratio (what you owe compared to what you earn on a regular basis) rather than your debt alone. As long as your debts don’t take up more than 36% of your gross monthly income, you can still qualify for a loan (as long as your new mortgage loan would add no more than 28% to your total monthly debts).
If you’re interested in calculating your debt-to-income ratio, the Bureau of Consumer Financial Protection has created a free tool to help you here.
Misconception #2: You need to save up a huge down payment before buying.
Everyone talks about needing a 20% down payment to buy a home. Putting this much down would reduce your monthly payments and certainly makes you more competitive in the eyes of sellers. But in most cases this isn’t necessary, nor is it realistic — especially for first-time homebuyers.
Today, there are many loan programs available (USDA, VA, etc.) that make it possible to buy a house with a very small down payment (3% to 5%) or no down payment at all! You can also apply for down payment assistance from state and local agencies like the Utah Housing Corporation (UHC).
Misconception #3: Shopping around for mortgage loans will tank your credit score.
Contrary to popular belief, your credit will not be dinged every time a mortgage lender pulls your credit. Most credit bureaus are able to recognize when you’re rate shopping and will not hit you with a hard inquiry until you choose a lender and apply for a loan through them.
Depending on the lender and the credit score model, you will have anywhere from 14 to 45 days to get as many preapprovals as you want without negatively impacting your credit report. This allows you to compare preapprovals and loan estimates and find the best one for you without hurting that credit score you’ve worked so hard to improve.
Misconception #4: Renting is cheaper than having a mortgage.
If you only plan to live in a home for a short period of time (less than two years), sure, renting can be cheaper. But for long-term plans, buying is almost always the more cost-effective option (though it does depend on your area and other factors).
According to data from 2019, the average rent payment in the United States was a whopping $1,430 (up 3.2% from the previous year) while the 2018 national average mortgage payment for a 30-year fixed loan was $1,275 . Rent rates are on the rise, especially in populous or up-and-coming areas, and paying these climbing costs won’t help you accumulate wealth.
On the other hand, mortgage rates are at a historic low, and owning property gives you the opportunity to add value and build equity — both of which can offset the costs of purchasing.
When in doubt, check out Zillow’s rent vs. buy calculator and find out if it makes more financial sense for you to rent or buy based on where you live or plan to live.
Misconception #5: You have to buy a home during the spring or summer.
It’s common for people to move in the spring and summer because the days are longer, the weather is nicer, and there aren’t as many scheduling conflicts with school or the holidays. But the reality is that summer home sales are more advantageous for sellers than for buyers. Purchase prices skyrocket during the summer because of all the competition, so you may find a better deal in the fall or winter when competition isn’t as fierce. MarketWatch reports that in October, starter home inventory reaches its peak and prices plummet, so you’ll have more options to choose from in the off-season, too.
Misconception #6: You have to have impeccable credit to qualify for a mortgage.
It used to be that you needed at least a 640 credit score to qualify for a mortgage loan. But with the introduction of federally insured loans like FHA loans, lenders will now allow you to buy a home even with less-than-perfect credit (usually 580 or above) as long as you can meet certain requirements, such as a 10% down payment.
Misconception #7: It doesn’t matter who you choose as a lender.
One of the worst mistakes a homebuyer can make is choosing the first lender that comes along instead of carefully comparing their options. Not all lenders are created equal, nor do all of them have your best interests in mind. Some charge outrageous fees and push products you don’t need for their own commissions.
Be careful who you choose. Search out a lender that takes the time to get to know your needs and your goals and is willing to put you in the best possible situation.
Get out of your head. Get into a home.
Now that you know homeownership is not as complicated as you once thought, it’s time to get out of your head and get into the mindset that homeownership is possible. Loan Remedy is ready and eager to answer any other questions you may have and get the process started, so contact us today when you’re ready to accomplish your goal of buying a home.