5 myths about credit scores for first-time home buyers

Top Homebuying Myths

5 myths about credit scores for first-time home buyers

Whether you’re in the market to buy your first home or you’ve been around the block a time or two, chances are you might still feel a little unsure about how to really nail the process.

Nobody teaches you how to navigate what is ly one of the biggest purchases of your life, and this multi-step journey can bring up a lot of unknowns — especially when tons of misleading myths surround the topic.

We’re here to dispel the most popular myths to help your process go as smoothly as possible — and to make sure you get the best bang for your buck. So, no matter if you’re crazy about condos, musing over mansions, or raving about ranches, start your search by separating these home facts from fiction.

Myth #1: You have to put 20% down

When it comes to down payments, 20% is certainly considered the magic number. But while it’s often recommended that you make a down payment that’s 20% of your home’s value, it is not a requirement. In fact, several mortgage programs accept lower down payments — even as low as 3%.

You don’t have to rule out homeownership if you haven’t saved up as much as you would have d. Just be prepared to possibly take out private mortgage insurance (PMI) if your down payment is less than 20%. This helps protect your lender should you default on your loan and will ly add an upfront cost and additional monthly fee to your mortgage payment.

On the other hand, if you’re able to put down 20% or even more (and it makes sense for your financial situation), doing so might be a good idea. When you make a larger down payment, you could receive lower monthly payments in return — potentially saving you thousands of dollars in interest over the life of your loan.

Myth #2: Borrowed money can be used for your down payment

Using personal loan funds or borrowing money from your grandparents, for example, is typically a no-no when making a down payment. Yes, even when it comes to flexible lenders.

That’s because it makes you a riskier borrower since doing so will increase your debt-to-income (DTI) ratio, which lenders prefer to be 36% or lower, and no higher than 43%.

Your DTI ratio represents how much of your gross monthly income goes toward paying off debt.

But that doesn’t mean you can’t still get help to make your payment. You can use gifted money (from parents, relatives, etc.), but you might need to provide confirmation that the funds don’t need to be repaid.

Myth #3: The down payment is the only money you’ll need at closing

In addition to your down payment, you should be prepared to pay closing costs, which are usually 2 to 5% of your home’s purchase price.

This expense includes fees paid to your lender, discount points, origination fee, and sometimes application fees or a processing fee.

You’ll also be charged fees by third parties to cover the costs of the appraisal, property survey, title search, insurance, attorney, credit bureau, flood certification, tax certification, and recording/state fees.

And, as mentioned earlier, you might also have to make a mortgage insurance payment at closing if your down payment is less than 20%.

Down the road, if you decide to refinance, you’ll find there may be additional costs — credit, appraisal, and escrow fees — to factor in with that process, too. (It’s not just about getting a lower rate or monthly payment!)

Myth #4: You can’t get a mortgage with student loans

Paying back student loans can certainly make it more difficult to save up for a down payment. But they don’t disqualify you from getting approved for a mortgage. Remember, a number of mortgage options let you make a down payment less than 20%. Plus, lenders aren’t looking at your total debt, but how much you’re paying each month (a.k.a. your DTI ratio).

If you have student loans, aim to keep your DTI ratio low by avoiding unnecessary credit card or other debt. You can also lower your DTI ratio by increasing your income through a side hustle or second job. And keep your credit score healthy by paying all your bills on time.

Read more: How to Pay Off Student Loans and Start Saving

Myth #5: You need great credit to buy a home

Typically, the higher your credit score, the lower interest rates you’ll qualify for. Why? A high credit score indicates to your mortgage lender that you’re ly to repay your loan on time.

A score of 740 or above is often considered excellent and will help you qualify for a lower down payment requirement and lower interest rate. The minimum accepted score for most conventional loans (those that aren’t backed by the government) is 620, but options exist ( FHA loans) that let you qualify with a score as low as 580.

Myth #6: Your friends or family know the best agent

They may know how you take your coffee and your favorite podcast, but they don’t necessarily know who will help you land the home of your dreams.

Working with an experienced real estate agent — especially in a hot housing market — is key and that means you might need to interview at least a few agents before making a final decision.

Read online reviews, ask to talk to former clients, and most importantly, inquire if the agent has recently closed on properties similar to what you’re looking for in terms of both price tag and location.

You’ll also want to check for a personality fit, too. Do you want someone who is patient and will guide you through the process? Or do you want someone who works fast and is straight to the point? Go with an agent that will suit your shopping style, so you can make the most of this critical relationship.

Myth #7: You don’t need a home inspection

While it may cost a couple hundred dollars to have a professional thoroughly inspect your potential new property, this step might save you even more money and headaches down the line.

A home inspection can uncover issues you probably wouldn’t be able to detect on your own (think: structural issues, problems with the plumbing system, or insect infestations).

If the findings are significant enough ( a major crack in the foundation), you may be able to back your contract without penalty. Or you could choose to ask the seller to fix the issues for you or reduce the price you have to pay.

Myth #8: You should only apply to one mortgage lender

Your new house shouldn’t be the only item on your shopping list — and we’re not talking about new furniture or décor. When you’re buying a home or refinancing, you should always shop around for your mortgage as well to ensure you don’t settle for a not-so-great rate. That means comparing rates from several banks, credit unions, or mortgage companies.

Rule of thumb says to get a loan estimate from at least three or four lenders. You might even want to get pre-approved by multiple lenders as well. While this process may take a little time and effort up front, getting even a slightly lower interest rate can save you thousands of dollars in interest payments over the years.

If you have a preferred lender (for instance, if you’re ever refinancing, you may be inclined to stick with your current lender), check if they’ll match the lowest offer.

Myth #9: You’ll probably pay the listing price or negotiate it lower

If you’re looking to buy in a seller’s market (a.k.a. a hot market), where demand is high and supply is low, you could end up having to bid and pay more than a property’s list price. When there’s competition, sellers have options — and a higher bid can help you stand out from other interested buyers.

If you’re shopping in a hot market, you’ll probably want to look for houses listed below your budget. A good real estate agent can help you navigate your home search to make sure you find something that fits your needs and you budget.

Myth #10: You should avoid ARMs

An adjustable-rate mortgage (ARM) is a home loan that has an initial low interest rate for a fixed term (often 5 or 7 years) that then resets periodically (ex: once a year) after that.

These loans are attractive because of low interest rates at the beginning of the term, but the potential for rates to increase after the fixed term can make them a major risk, and since the 2008 housing crisis, they’ve had a bad rap.

If you are planning to move or refinance within a few years (i.e. before your fixed-rate term ends), ARMs can actually be a strategic move. You’ll potentially save on interest early and won’t have to deal with the risks of the variable rate later.

When you’re buying a home, knowing all your options (and taking advantage of them) is key.

Many of these myths can make you feel constrained, whether it’s tying you to a 20% down payment or holding you to one mortgage lender option.

But by understanding the ins and outs of the home purchasing process — and saying goodbye to the falsehoods — you can make this a positive experience for both you and your wallet.

Get pre-approved for a home loan.

Источник: https://www.ally.com/do-it-right/home/top-homebuying-myths/

News Room

5 myths about credit scores for first-time home buyers

The many myths that surround the home buying process don’t make the process any easier. Believing them to be true could keep someone from buying their first home or the home of their dreams, so we felt it was important to address these myths and bust them!

Busted! You have options

Before letting that 20% down figure talk you making an offer on a home, know that there are home loans that allow you to put down as little as 3% and in some cases 0%.

0%-down loan programs are available for first-time homebuyers, Veterans, or those that qualify for the USDA program. In 2017, the majority of first-time homebuyers made a down payment of 0-6%, according to the November 2017 REALTORS® Confidence Index Survey.

Numerica offers a number of home loans to help you get the house you want!

Busted! Don’t let debt fool you

In 2018, 26% of all homebuyers had a student loan, according to the Home Buyer and Seller Generational Trends Report. Other debts auto loans and health care costs also factored into the decision making.

From student loans to credit cards, everyone has some degree of debt. Rather than letting your debt negatively affect your home buying decisions, know that accruing debt and showing the trustworthiness to pay it back is a crucial element of your credit score.

The bigger issue is to make sure your debt-to-income ratio is not too high. What is debt-to-income ratio? Take all of your monthly debt payments and divide the total by your gross monthly income. The ratio is shown as a percentage, and lenders use it to determine how well you manage monthly debts — and if you can afford to repay a loan.

Before assuming that your debt will prohibit you from buying a house, meet with your lender or call one of the Numerica Home Loan Team Members to find out what your options are.

Once you know if you are in a good position to qualify for a home loan, keep in mind that a good rule of thumb is to keep your monthly house payment around one third of your income.

Busted! You are more than your credit score

It’s true, your credit score factors into getting a better mortgage rate. However, even those with bruised credit could qualify for a home loan. Your credit score is part of your story, but it’s not all of you.

There are home loan options for people with credit scores between 600 and above. Moreover, each lender has their own criteria for approval, and while it is true that your interest may be higher if your credit score is lower, you may still be approved.

Talk with your lender and find your loan options. Remember, Numerica is committed to serving people and not credit scores. Numerica looks at your entire financial picture when approving you for your home loan.

Busted! Pre-qualification does not equal “I got the loan.”

While these two terms sound a, they are different steps in the home buying process. Pre-qualification is the beginning conversation to determine what kind of loan you might be eligible for as well as an estimate of your budget. You walk away from pre-qualification with an understanding of how much money your loan may be approved for.

To pre-qualify, you provide your income, debt, and assets, which your lender looks at to determine your possible loan amount. It is not in-depth and does NOT consider your credit score. After pre-qualification, you and your lender can then look into the types of loans that will suit your financial situation.

Pre-approval requires a mortgage application, and your lender does a thorough review of your credit history and financial life to date. It will give you an idea of the amount you are able to borrow and the interest rate at which you could borrow that money.

Busted! This may be negotiated

Closing costs are fees in addition to the price of your new home. They can include:

  • Appraisal
  • Title insurance
  • Lender costs
  • Homeowner’s insurance
  • Legal fees
  • Lender’s fees

In many situations, the homebuyer actually pays the closing costs and the seller pays a portion of the title insurance and escrow or closing fee. That said, there are times when the buyer pays both of those.

In almost all cases, closing costs can be negotiated depending on the type of loan. With conventional loans, buyers may be able to negotiate with the home seller to have the seller pay up to 3% of the sales price, which would go towards closing costs. On FHA loans, that percentage may be increased to 6%.

When you’re looking at the purchase of your new home, please keep in mind that closing costs can total between 2-5% of the purchase price. These costs are typically added to your down payment amount, and all funds are due at time of closing.

Myths busted

Now that we’ve busted some of the top home buying myths, you might feel a little more curious about buying a house yourself. If you are, we suggest connecting with one of our Home Loan Team Members.

They will take the time to find out what loans might work best for you and find out how much you could pre-qualify for.

This will help you make an educated decision about one of the largest and most rewarding purchases of your life.

About Home Loans Contact Us

Источник: https://www.numericacu.com/news/5-home-buying-myths/

6 First-time Homebuyer Myths

5 myths about credit scores for first-time home buyers

If you’re in the process of buying a home for the first time, you probably have some questions about the best way to find and finance your dream home. At Better Mortgage, our goal is to make sure you have the education and support you need – that starts with dispelling some common myths about mortgages and homebuying.

See how much you can afford

Myth #1:

You shouldn’t put less than 20% down

It’s true that a down payment above 20% means you won’t need to pay for private mortgage insurance (PMI).

That said, for borrowers with great credit and a steady income, putting less than 20% down can be a financially sound option, allowing you to start investing and building equity sooner.

In fact, 72% of Better Mortgage buyers put less than 20% down on their homes. At Better Mortgage, we offer low down payment options starting with as little as 3% down. Read more about when a 3-5% down payment isn’t a risk.

Myth #2:

You can’t get a mortgage if you have student loans

Haven’t been able to save for a down payment because you’ve been paying off student loans? Don’t write off homeownership just yet. The other important thing to remember is how lenders view debt.

Lenders won’t look at how much your total student debt is, but how much you pay each month towards those loans and how your monthly debt compares to your monthly income.

This article has more tips on getting a mortgage with student loans.

Myth #3:

You should avoid adjustable-rate mortgages (ARMs)

After the 2008 housing crisis, many buyers were wary of adjustable-rate mortgages (ARMs).

But if you’re planning on selling (or refinancing) your home within 10 years, opting for an ARM instead of a fixed-rate mortgage could save you thousands. It’s more common than you may think.

According to the National Association of Realtors, homeowners age 37 years and younger sell their homes after an average of six years.1 Read more about the pros and cons of ARMs here.

Myth #4:

You won’t qualify for any savings programs

At Better Mortgage, one in four of our borrowers is eligible for an affordable lending discount2 – and that number is growing every day. The federal government and other government-sponsored entities Fannie Mae have created a variety of affordable lending options.

At Better, we offer access to a few mortgage discounts. The first are Fannie Mae’s HomeReady loan and an FHA loan. (Read more about the pros and cons of both options.

We generally recommend a HomeReady loan if your credit score is at least 620, since it offers the option to cancel mortgage insurance once your home equity reaches 20%.) There's also a loan discount subsidized by banks in your community.

These programs allow you to qualify for more attractive mortgage pricing. Eligibility may be your location, the way you earn, the median income in the area where your home is, or your first-time homebuyer status.

Myth #5:

Your pre-approval is good for any home

Even if you’ve been pre-approved to buy a home at a certain price, the specific property itself can impact how much you’ll ultimately be able to borrow, as well as the final cost.

For example, the cost and terms of your mortgage can be affected by things property type (condos and townhomes may have higher rates than single family units), property tax rates, and homeowners association fees.

And if a bidding war takes your offer even slightly over the area’s jumbo loan limit set by the federal government, your loan may come with different rates and eligibility requirements. This article breaks down all the ways a specific property could affect your mortgage.

Myth #6:

Your friends or family know the best agent

Especially in a hot housing market, working with an experienced real estate agent is key. We suggest interviewing at least a few agents before making a final decision.

Read online reviews, ask to talk to past clients, and most importantly, ask if the agent has recently closed on properties similar to what you’re looking for in terms of both price range and location. You’ll also want to check for a personality fit, too.

Do you want someone who is patient and will guide you through the process? Or do you want someone who works fast and is straight to the point? Go with an agent that will suit your shopping style.

Need help finding the right real estate agent? While there is no obligation to use our suggested agents, we can help you save time and energy by introducing you to one who has been vetted by our team. Every agent we suggest has a strong track record of success in your area. Schedule a free consultation to learn more.

© 2021 Better Holdco, Inc. and/or its affiliates. Better is a family of companies. Better Mortgage Corporation provides home loans; Better Real Estate, LLC provides real estate services; Better Cover, LLC provides homeowners insurance policies; and Better Settlement Services provides title insurance services. All rights reserved.

Home lending products offered by Better Mortgage Corporation. Better Mortgage Corporation is a direct lender. NMLS #330511. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007. Loans made or arranged pursuant to a California Finance Lenders Law License. Not available in all states. Equal Housing Lender. NMLS Consumer Access

Better Real Estate, LLC is a Virginia Licensed Real Estate Firm with its principal office located at 312-F East Market St., Leesburg, VA 20176. License #0266029484. Equal Housing Opportunity

Better Settlement Services, LLC. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007

Homeowners insurance policies are offered through Better Cover, LLC, a Pennsylvania Resident Producer Agency. License #881593. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007

Better Mortgage Corporation, Better Real Estate, LLC, Better Settlement Services, LLC and Better Cover, LLC are separate operating subsidiaries of Better Holdco, Inc.

Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable and legal and regulatory requirements.

Products not available in all states.

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Источник: https://better.com/content/6-first-time-homebuyer-myths/

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