When buying a first home, many people are making one of the biggest purchases of their lives. Without home buying experience, it can be difficult to separate fact from fiction. Get the facts on these common first-time home buying myths:
Myth – It takes a 20 percent down payment to buy a home.
Reality – Required down payment amounts vary by type of loan, and they are on average lower than you may think. Last year, the median down payment for all first-time buyers was 6 percent, according to the National Association of REALTORS®. One reason is that some first-time buyers use FHA loans, which require down payments as low as 3.5 percent. Conventional loan programs have become available requiring down payments as little as 3 percent for first-time home buyers, and VA loans require nothing down for qualified veterans or active military personnel. Some conventional loans do require 20 percent down, but you may be able to lower that percentage with private mortgage insurance. There are also hundreds of down payment assistance programs that eliminate or reduce down payment requirements for qualified borrowers.
Myth – If you owe a lot of student loan debt, there is no way you can get a mortgage.
Reality – Don't assume that having a lot of student loan debt automatically disqualifies you from getting a mortgage. The key factor is not necessarily the size of your loan obligation, but the amount of your total monthly debt payments compared to your monthly income. This is called your debt-to-income ratio, or DTI.
Myth – If your credit score is lower, you should not even try to get a mortgage.
Reality – Potential buyers often assume they will not be approved for a mortgage even though many may qualify. However, factors other than your credit score are considered during the mortgage application process. Buyers with lower credit scores still may be able to get a mortgage if they have good income and lower levels of debt.
Myth – Buying a home isn't a good investment.
Reality – Real estate, like other assets, rises and falls based on supply and demand. In recent years, home values in most markets have been rising. While all real estate is local, if you bought a home in March 2012, by August 2014, the national median home price as measured by Case-Shiller had risen 29.6 percent.
Myth – The mortgage interest tax deduction is going away.
Reality – Though the deduction has its critics, most observers believe it is unlikely that Congress will eliminate the mortgage interest deduction any time soon. Many states also allow homeowners to write off the interest they pay on their mortgages from their state income taxes. Check with your accountant or CPA on if you can qualify for this type of tax deduction.
Myth – I'm about to get married, and the wedding is so expensive I won't be able to buy a home.
Reality – According to TheKnot, the average wedding has 138 guests who typically give a gift valued at $100 each. That's $13,800 in spatulas, baking pans and other things. If every guest contributed to a down payment fund instead, you may have enough saved for a down payment.
Have more questions? Contact your local mortgage consultant, today!
Reprinted with permission from RISMedia. ©2015. All rights reserved.
All first mortgage products are provided by Prosperity Home Mortgage, LLC dba Pennsylvania Preferred Mortgage. (877) 275-1762. Prosperity Home Mortgage, LLC products may not be available in all areas. Not all borrowers will qualify. Licensed by the NJ Department of Banking and Insurance. Licensed by the Delaware State Bank Commissioner. Also licensed in District of Columbia, Maryland, North Carolina, Pennsylvania, South Carolina, Virginia, and West Virginia.
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