Busting 2 Common Homebuyer Myths
“I need to put 20% down to purchase a home.” That’s the first myth of the day, and it couldn’t be further from the truth. The 20% down requirement is true for conventional loans, and buyers that go this route don’t have to pay private mortgage insurance (or PMI). For anything less, though, the lender will require the buyer to purchase PMI as protection against possible default.
This is likely where some of the confusion lies when, in actuality, this doesn’t mean a buyer must come up with a 20% down payment. You can actually be eligible for a conventional loan for as little as 5% down.
If you’re a primary resident, your down payment can even be as low as 3% through an FHA loan. On top of that, the seller might grant you a concession allowing for your closing costs to be wrapped into the loan.
It gets even better if you’re a veteran—a VA loan offers a no-money-down option for past or present service members.
This dovetails seamlessly into homebuyer (and renter) myth No. 2: “I need a credit score of 780 in order to qualify for a home loan.” Again, this belief is also devoid of any truth. What is true is that the higher your credit score is, the lower your interest rate is likely to be. However, interest rates are still extremely favorable—we haven’t seen any movement away from the historical lows we’ve been experiencing.
A score of 620 is high enough to qualify for an FHA loan and, believe it or not, if you’re able to bolster your qualifications with compensating factors, you can actually receive a low-interest loan with a 580.
Here’s a crazy number for you: 30% of homebuyers and 38% of renters believe either one or both of these myths to be true.
If you’re a renter, this information presents a wealth of opportunities for you to take the money you’re currently paying for rent, purchase your own home, and even write off the interest.
In short, you want to talk to your real estate professional about your options; they can point you in the direction of a preferred lender and help you understand what opportunities are at your disposal.
If you’re a renter or buyer and you have any questions related to this or real estate in general, please reach out to us. It doesn’t cost you a thing to have a conversation. We hope to hear from you soon!