If you’re thinking of dipping your toe into the waters of homeownership, there are plenty of things you already know. You know when home prices are rising. You know when interest rates are low. You know what neighborhoods you like.
But there are also some things that would-be first-time homebuyers simply assume. Sometimes, they disqualify themselves from becoming homeowners because of those assumptions. You might think you can’t yet buy your first home, but maybe you can. Maybe you think you can, but can’t.
It’s counterproductive to make assumptions and rely on hearsay. There are plenty of myths about first-time homeownership, and here are four big ones that can be debunked.
You need great credit
There was a time after the financial crash of 2008 and the ensuing foreclosure crisis when you had to have a credit score higher than the historical norm to qualify for a mortgage. The fairly sudden raising of standards could be seen as a knee-jerk reaction to the easy home-loan money that helped burst the real estate bubble.
Times have again changed. While you probably have to have a score of 700 or better to land the lowest mortgage interest rates offered, you can get a conventional home loan with a score of 620 or above. For a Federal Housing Administration (FHA) loan, the minimum can be as low as 500, depending on how much money you use as a down payment.
It’s a myth that you need a stellar credit score to purchase a home.
You need a large down payment
Just as with your credit score, a higher down payment is more likely to allow you to secure a lower interest rate. However, it’s not true that you must put down 20 percent of the purchase price to buy a home.
The no-money-down loans that helped fuel the housing bubble of the early years of this century are no more, but there are lower down-payment options, especially for first-time homebuyers. In fact, there are 3-percent down payment options available with FHA loans.
Saving for a down payment on a home is a barrier for many, but it might not be as big a barrier as you’ve come to believe.
You should buy as much house as you can afford
For years, the rule of thumb in real estate was to buy the most expensive house that you could afford. But what a mortgage lender says you can afford and what is actually the top end of your budget can be two different things.
Extending yourself financially can be problematic. Using your life savings as a down payment can erase any sort of emergency fund you have for large, unexpected expenses that come up. Having a large house payment can make you “house-poor,” meaning you can’t comfortably afford the other things you want or need.
It’s also true that the value of homes almost always increases over time, but if it’s money you’re after, other long-term investments have historically had higher annual rates of return. Buying the most expensive home possible is no sure path to wealth for everybody.
You can always get a deal on a “fixer-upper”
Homes that need work can provide great value, but only if they’re priced appropriately. It doesn’t make much sense to buy a $200,000 home that needs a ton of work when you can get a home with all that work already done for a little more.
Remodeling and renovating can get expensive, and unless you have the time and skills to do a lot of the work yourself, you’ll end up paying somebody to do it. A move-in-ready home might be more expensive in the short term, but one that needs work can be even more expensive over the long haul.
The bottom line
First-time homebuyers tend to have a lot of impressions about buying a house. Not all of them are always correct, and not sorting out the myths from the truths can be an unnecessary stumbling block on the path to homeownership.