You need a big down payment
The 20% down payment myth still persists in many people’s minds, although there are so many other options available. The Federal Housing Authority (FHA) was established many years ago to help more Americans buy homes. A FHA backed loan only requires 3.5% down, substantially lowering the barrier to home ownership.
The FHA insures a loan against default, meaning that if a borrower defaults on a loan, the FHA would pay the remaining balance to the lender and take possession of the home. Since 1934, the FHA and HUD have insured approximately 50 million home mortgages. Right now, the FHA has approximately 8.5 million insured single family mortgages.
Other loans come in at zero down payment, such as those with the Department of Veterans Affairs and the USDA Home Loan program.
There are many options available and your lender will be able to navigate you through which options are best for your personal situation.
You need an amazing Credit Score
Your credit score shouldn’t discourage you from exploring homeownership. Did you know that with a FHA loan, you can qualify with a score as low as 580? Now, that presents other challenges such as having to have a higher down payment (10%) but you are still in the game.
A higher credit score is going to help you obtain a lower-interest loan and you’ll have access a variety of lenders but having a 700+ credit score is not necessary.
When the US Government stepped into the market years ago, the credit requirements were lowered, opening up the dream of homeownership to many more people. As with anything, do your research and speak to a qualified lender. Requirements are always subject to change and having a great lender will get you to your goal faster.
You Don’t Need an Agent
Buying a home isn’t something that most people do more than a few times in their lives. Navigating the contracts, inspections, appraisals, clauses and timelines isn’t something you should try to do alone. Hiring a real estate agent is the best move you can make in the home-buying process. Yes, agents do get a commission from the sale but if you are a buyer you probably won’t see those fees; they are built into the purchase price and the seller typically pays them.
There is no substitute for experience and a great agent will ensure that you are getting the best deal all-around. Most agents are scrubbing their local markets all the time and can help you find the best house to fit your exact needs, location and budget. Top agents are well connected and can find suitable homes that you may not see with a simple internet search. Also, spend some time initially interviewing a few agents. Some are better than others. Find the perfect agent for your situation. Need help? Use EffectiveAgents.com for unbiased, data-driven results. Check out this link for a printable interview questionnaire that you can use.
Buying a fixer upper is better
There is a certain romanticism in buying a house that needs repairs and saving money on the purchase price by doing so. However, in a recent survey, 50% of people reported that the renovation process caused a significant stress on their relationship!
Those TV shows don’t give you the whole story. Remodeling kitchens and baths are one of the top renovations that people do but you never know what you’re getting into. Do you really want to spend the first year or more in your new home, half torn apart?
If you are a contractor, then yes, this could make sense but otherwise ask yourself the hard question … can you really do the work yourself and will that save you money in the long run, or is it better to just pay a little more and get the home you really want, that you’ll enjoy from day one?
It’s cheaper to rent than buy
Years ago, this may have been a valid argument. In a recent report from ApartmentGuide.com, however, average rent increases nationally have been significant. From their report:
- Studio apartments currently reflect the biggest change in average rent prices, jumping to $1,691 per month in 2020 from $1,605 in 2019 (a 5.37% increase)
- One-bedroom apartments, on the other hand, have changed the least — rising to $1,621 in 2020 from $1,596 in 2019 (a 1.6% increase)
- The second-largest pricing change was for two-bedroom units, which currently rent for $1,878 in 2020 vs. $1,815 in 2019 (up 3.46%)
There are more upfront costs with buying a home such as a down payment, closing costs, fees and mortgage insurance but if you plan on staying in the same area for 5 years or more, your home purchase makes much more sense financially.
Let’s look at one scenario, in Tampa, Florida. The average rent in Tampa for a 962 square foot apartment is $1359. Examining owning a home for a purchase price of $200,000, that monthly payment would be $1206. Already you can see the cost savings! But, using all current trends in rent and home value increases, after 3 years with the equity you would have built in your home value, you would save over $25,000 vs. renting.
Buying a home is a huge decision that should be carefully considered. A professional real estate agent can help and the best way to find the perfect agent is through EffectiveAgents.com Do a free search and check the results and congratulations on your first step towards home ownership.