Buying your first home is thrilling – but do you feel excited like it’s your birthday or kind of spooked as if you’re about to get on the ghost train at the amusement park?
However you’re feeling, we’ve got you covered with this fun list full of all the myths and mysteries you might have heard about buying your first home.
Renting Is Always Cheaper Than Buying
This isn’t usually true but will depend on where you live. In many places across the U.S., a mortgage payment is cheaper than or equal to rent. Plus, your payments are working toward building equity and even owning your home outright!
It’s only if you live in an area with sky-high property values (such as San Francisco or Manhattan) that rent is often less than a mortgage payment.
All Lenders Are the Same
Do you think all cereal or pizza is the same? Of course not! Everyone has their favorites and it’s just the same with lenders. Different lenders offer different rates and terms, but they also offer a different experience.
For instance, your local not-for-profit credit union may offer lower rates and more personal service, which can be useful if your finances are a bit irregular. At Bowater Credit Union, we treat our members like family! We know every situation is unique and strive to work with you and your circumstances.
Find the Home and Then Apply for the Loan
You need to get a horse to pull your cart, right? So with your home loan, your lender is the horse and your house is the cart. In other words, you should get pre-approved for your home loan so you’re ready to go!
In today’s competitive market, you won’t have time to get approved once you start making offers. But note that if your circumstances change during the underwriting period (when all your documents are verified and funds put in place), you could be denied the loan.
Use All the Available Loan Amount
Once you’re pre-approved, you’ll find out the maximum amount you can borrow. But be careful about using all that money on the purchase price of your home as you’ll need funds to pay closing costs – and a less expensive house means a more affordable mortgage.
As a general rule, your mortgage should be under a third of your gross income so be sure to work out a monthly budget and leave some room for emergencies. A handy way to remember what goes into your mortgage payment is PITI (Principal, Interest, Taxes, and Insurance).
You Need a 20% Down Payment
This isn’t true! Many lenders and home buying programs offer mortgages with lower down payments. For example, FHA loans need 3.5% and VA Loans need 0%.
Note that you’ll likely need to pay private mortgage insurance (PMI) if your down payment is under 20%. And the higher your down payment, the less you’ll need to borrow.
You Need Perfect Credit
Nope! The credit score you need will depend on your lender and the type of home loan you get. For example, FHA loans accept lower credit scores as long as you can prove you have a steady income. As well as your credit score, lenders will look at your:
- Property type
- Debt levels
It’s a good idea to find out your score and look at ways of improving your credit before you apply for your first home loan.
You Can’t Have Student Loans
Having student loans isn’t a barrier to buying your first home! Your lender will look at your financial situation and assess your debt-to-income ratio (DTI). Your DTI is a percentage indicating your monthly debts divided by your gross monthly income.
A debt-to-income ratio of 36% is generally considered manageable. Lower is better.
You Must Use a Real Estate Agent and Lawyer
It’s up to you who you have on your team when buying your first home. You could fly solo but a real estate agent will help you when it comes time to make offers and maybe even get into a bidding war.
Some states require you to have a real estate lawyer and others don’t. Either way, a lawyer can make sure everything is done according to the books.
Now Isn’t a Good Time to Buy
Is there ever a perfect time for anything? Rather than worrying about the market and inventory levels, consider what’s right for you and your family. If you feel ready to buy, then don’t let anything hold you back.
Keep in mind that interest rates are still lower now than they were several years ago.
So with a little patience and helpful advice, you’ll be able to find a home no matter what they’re saying on the news.
Wait Until You Can Afford Your Dream Home
When you’re buying your first home, you might not be able to get the mansion and pool right away. It’s a good idea to start with a modest home and make sure you can comfortably afford the mortgage each month – even if your home doesn’t check every box.
The main thing is to get a foot on the property ladder. Over time, you can leverage equity and start moving upwards!
A Fixer-Upper Equals a Bargain
Don’t be fooled by a low purchase price. Unless you’re handy and have all the tools to do it yourself, renovations can easily run into tens of thousands of dollars.
Very quickly, you might spend the same money as if you’d bought a turnkey home. Plus, you have to put up with the inconvenience of a lengthy and disruptive remodel.
A 30-Year Fixed Mortgage Is Always Best
A 30-year fixed-rate mortgage is indeed the most common type of home loan. But if you have a high income and sizable down payment, you could choose a shorter term to pay off your loan faster and save on interest.
Or, if you know your income will go up in the future, you could look into adjustable-rate mortgages (ARMs) that give you a low, fixed rate for a few years then adjust with the market.
You’ll Pay the Exact List Price
The list price is just a starting point. In a hot real estate market, the seller may request “highest and best offers” by a certain time and day so the eventual price ends up over the asking price.
Your Offer Is Guaranteed If Accepted
You might be thrilled when you put in an offer on a gorgeous home and the offer is accepted! But just hold the champagne for a little longer as things can still change due to counter offers and other unforeseen events.
The home isn’t yours till you close, which is often about 45 days after your offer is accepted.
Buying Your First Home With Bowater Credit Union
So now you’re up to speed on the facts of buying your first home. What next? Now’s the time to look at your local real estate market and find out what you’re going to need to compete with all the other excited future homeowners. Click below for tips and tricks!