Sometimes buying a home seems like the most daunting process in the world, especially if you’re a first-time homebuyer that isn’t sure what to expect. Some may even have you thinking you have to hold off on home ownership until you’ve saved what seems like an almost impossible amount of cash, obtained a perfect credit score, and paid off your student loans. Here, we set the record straight.
Myth 1: You can’t buy a home until you’ve saved 20% for a down payment
This is something a lot of first-time home buyers hear from well-meaning but misinformed advice givers. While those who purchased homes decades ago may have put down 20% as a down payment in order to avoid paying for “Private Mortgage Insurance” or PMI, in today’s world the National Association of Realtors calls the 20% rule “more myth than reality.” We offer several loans with little to no down payment, including FHA Loans, VA Loans and USDA Loans, and some conventional loans only require a 5% down payment. The bottom line is that there are options for responsible homebuyers across the spectrum, even those that haven’t saved close to 20% of a home’s asking price.
Myth 2: You need a perfect (or almost perfect) credit score to make home ownership a reality
Everyone makes mistakes, and sometimes that’s reflected on an aspiring homeowner’s credit report. But a less-than-stellar credit score doesn’t mean that a mortgage is out of reach: 620-640 is the minimum credit score you need to qualify with many lenders. Higher credit scores will typically lead to better interest rates, but if you’re tired of putting money towards rent rather than your own equity, it’s typically possible to buy a home and refinance when your credit score hits the good to excellent range. Our blog also offers tips on improving your credit score, so don’t let past credit problems be the reason you hold off on your dream of home ownership.
Myth 3: Student loan debt precludes you from getting a mortgage
It’s true that we’ll look at your debt-to-income ratio in order to determine your mortgage eligibility, but having student loans isn’t necessarily a deal breaker. Your credit score and income will also play a role in the decision, and we’ll consider monthly debt commitment rather than the total amount of outstanding debt. Additionally, you don’t need a zero balance on your credit card if you have a large amount of student loan debt to pay off, but the less debt you have, the better your rate will be. That means if you can bring down monthly payment amounts and/or pay off credit cards before you apply, you’ll increase your chances of obtaining a better mortgage rate.
If you’re in the market for a new home and want to know what your mortgage options are, we’ve got you covered. Contact me today and we’ll set you up with a knowledgeable loan originator to provide you with options based on your financial needs.