There are several misconceptions about the home buying process that can leave potential buyers feeling uncertain and overwhelmed. Below, we cover five of them so you can be informed and prepared for this exciting new chapter in your life.
Misconception 1: You need a 20% down payment
There are many loan programs available that allow for a lower down payment, such as FHA, VA and USDA loans. The Federal Housing Administration (FHA), a government agency, provides loans with minimum down payments as low as 3.5%. These loans are popular among first-time homebuyers who may not have a large amount of savings for a down payment.
With a VA loan, qualified active-duty service members, veterans and surviving spouses can purchase a home without any down payment. This means that eligible borrowers can skip the step of saving for a down payment altogether and instead, use their savings to cover other expenses, such as closing costs or home improvements.
With a USDA loan, you can also finance up to 100% of the home’s value, meaning that you may not need to make a down payment at all.
Also, consider down payment assistance programs. These programs are often offered by state or local governments, nonprofit organizations and some employers to make homeownership more accessible by providing financial assistance in the form of grants, loans or even forgivable loans that can help cover a portion of the down payment and closing costs so more people become homeowners who might not otherwise be able to afford it.
Misconception 2: Your credit score doesn’t matter if you have a large down payment
While a larger down payment can offset a lower credit score, your credit score still plays a significant role in determining interest rate on your home loan. Lenders use your credit score to evaluate your creditworthiness and determine the likelihood of you repaying a loan on time. A higher credit score can make you appear less risky to lenders, which may lead to lower interest rates and significant cost savings over the loan’s duration.
Misconception 3: You should buy the most expensive home you can afford
Homeownership isn’t just your ability to swing the mortgage payments. You have to account for things like property taxes, homeowners insurance and maintenance expenses in your homeownership budget as well.
Misconception 4: You can’t buy a home with student loan debt
Although student loan debt can affect your eligibility for a mortgage, it is not an insurmountable obstacle. Your monthly debts will be compared to your monthly income by lenders through the assessment of your debt-to-income ratio. If your income is sufficient to balance out your student loan payments, you may still meet the requirements to qualify for a mortgage.
Misconception 5: You don’t need a real estate agent
Purchasing a home can be a complex process, but a real estate agent can provide you with guidance, handle negotiations on your behalf, and help ensure that all required documentation is filled out accurately.
Ready to buy a home in Tacoma? Mortgage Squad would love to be your lender. Contact us today to get started.