It is said that myths only become true if we want to believe in them. And believing in myths can become a self-fulfilling prophecy that stalls our financial dreams.
Too many aspiring homeowners believe in myths about home buying that keep them from achieving the American dream.
Here are four myths about buying a home you should start disbelieving now.
The 20% down payment
The 20% down payment is the biggest urban legend when it comes to buying a new home. It is a myth that has probably dissuaded many aspiring but financially struggling homeowners from even attempting to buy a first home.
The 20% mortgage down payment is a general guideline for closing a mortgage deal.
It is not a real estate or mortgage industry-mandated rule. Additionally, the 20% down payment myth is not a realistic estimate that many working-class Americans can pay.
The average American makes about $48,700 annually. Meanwhile, the average cost of a new home in June 2021 was $428,700.
And 20% of $428,700 is $85,740.
In fact, the average down payment for a mortgage ranges between 6% to 12%
If you qualify for a USDA or FHA loan, then your down payment could be as low as 3.5%. And if you qualify for a VA loan, then the down payment is 0%.
The down payment you pay for a mortgage depends on your current personal financial situation, not some rule. Still, the more you put down, the less you will pay for private mortgage insurance coverage.
You need perfect credit
Generally speaking, most mortgage lenders will require you to have a FICO score of at least 620 for a mortgage.
Still, you don’t necessarily need a perfect credit score for mortgage approval. A mortgage lender may approve you with less than perfect credit if you have long employment history and a large down payment.
If you qualify for a government-sponsored mortgage, such as an FHA loan, your credit score can be as low as 500.
Just remember: The lower your credit score, the higher the interest rate you are likely to pay.
High student loan debt disqualifies you from home ownership
Your student loan debt has no bearing on qualifying for a mortgage. What mortgage will look at in this scenario is your debt-to-income ratio.
As long as your debt-to-income ratio is less than 30%, you should be able to qualify for a mortgage.
A good history of paying your student loans on time can only work in your favor too.
A home inspection is not necessary
The average closing costs to finalize a home sale can be up to 5% of the mortgage’s value. One of these closing costs can be the home inspection.
Don’t forgo the home inspection. Home inspectors can detect hidden problems that can turn your new home into a money pit.
