Is your financial situation holding you back from buying a home? The obstacles to buying a first home may seem unconquerable, due to a rise in home prices, mortgage interest rates, and the impression of the market favoring sellers. For those who are under this impression, there’s some good news: you can purchase your first home. Here are a few issues that often hold people back from home ownership, and why they do not have to.
Myth 1: You must have a 20 percent down payment.
81 percent of Americans purchase their first home with less than 20 percent down and as little as 3 percent down. However, the 20 percent downpayment is recommended to avoid mortgage insurance payments on top of monthly housing costs. The Federal Housing Administration (FHA) Loan requires a 3.5% downpayment. The person receiving the loan must pay it back in two phases: 3.5% down at the real estate transaction closing and is known as the FHA upfront mortgage insurance premium and the remaining balance is paid monthly with the mortgage payment. Veteran Affairs (VA) Loans offer 100% Financing (that’s right, no-money-down) of the purchase of your first home. However, you can put down a payment of however much you can afford if you prefer to do so. Another common loan used by first time home buyers and repeat buyers is the Conventional Loan, which is a down payment of 3%. This is often favored by home buyers with above-average credit scores and those with proof of income.
Myth 2: You must have above-average credit.
Bad credit may be the number one issue that stands in the way of home ownership. Although this may limit your loan options, there are ways to deal with a bad credit report and how to get through it. A very important tip is being educated on what your credit score is. Here is some advice for those with bad credit while house-hunting:
Be honest about your bad financial choices and prepare to turn this version of yourself around. Start paying your bills on time and taking action to improve your credit score in every way that you can.
Speak to a Mortgage Broker and discuss ways to improve your credit score. Working with a mortgage broker gives you many advantages, such as working on the client’s behalf with banks to find lenders with competitive rates that fit your needs the best. Mortgage brokers are financial professionals and can offer guidance about how to boost your credit score.
Avoid incurring debt while you are searching for a new home. Opening a credit card, incurring new loans, and putting items on layaway are key things to avoid while trying to improve your credit.
Myth 3: The home that you desire is out of your price range.
Surprisingly, many house hunters do not have a set price range, which makes it difficult to find a home. It is very important to have a price range established before going into the home buying process. People often give up on their dream home because it isn't in their budget, but what actually defines a ‘dream home’? Make a list of the features you simply cannot live without and the features that you do not necessarily need. Also, it is smart to plan ahead and think of your future self or family when hunting for a home. While your dream house may be currently out of your budget, you do not have to settle for much below these expectations. Think about the features that define your dream home and tell your agent, there is a good chance that he or she will find a home that satisfies your wishes. You should not stoop much lower than your highest expectations for a house, with the assumption that your mortgage payment will stay the same over the years while your career’s income will likely increase.