Are you tired of paying rising rents? Is living in an apartment wearing on you? Would you like to start building equity for your future? Homeownership may be the answer and it’s more attainable than you think! Figuring out where to start as a first-time homebuyer can be overwhelming, but with the proper resources and guidance, you could quickly be on your way to a brighter future. Below we’ve debunked common first-time homebuyer misconceptions to help you determine whether you’re ready to buy and to better prepare you for the process.
MYTH 1: YOU NEED A 20% DOWN PAYMENT
Having to make a down payment of at least 20% of the home’s price is one of the most common misconceptions held by new homebuyers. Yes, it’s true, paying 20% does help bring down your monthly mortgage payment and eliminates the need for private mortgage insurance (PMI), but this isn’t your only option! In reality, 60% of homeowners put down 6% or less on their first home according to a study done by NAR, and depending on your household income you could qualify for a down payment as low as 3%. That means you’d only need between $14,178- $28,355 saved for your down payment based on the current median home sale price in Portland, Oregon ($472,578).
MYTH 2: YOUR DOWN PAYMENT IS THE ONLY UPFRONT COST
Now that we have down payments out of the way, you should know that’s not the only upfront cost you need to be prepared for. In addition to the down payment, buyers are required to pay closing costs which include fees related to your lender, appraisal, and title company. In Oregon, these fees typically vary between 2- 5% of the purchase price. At closing, you will also be required to pay ahead on your loan. This will give you a grace period when moving into your new home before your monthly payments begin. A detailed breakdown of these costs will be provided by your lender during your loan preapproval.
Lastly, you’ll need to set aside funds for your home inspections. Home inspections are completed shortly after you go under contract on a home and give you a chance to investigate the home’s condition and negotiate repairs. We suggest setting aside approximately $800- $1,000 to cover general inspections, a sewer scope, and radon testing.
MYTH 3: REAL ESTATE AGENTS ARE EXPENSIVE
I know what you’re thinking, even with a lower down payment the cost to purchase a home is adding up, and hiring a professional realtor sounds like one more expense. Thankfully, we have some good news for you, hiring an agent to help with your search costs you no money! Buyer agent commissions are paid at closing by the seller of the home you’re purchasing. Sellers typically factor in this closing cost when determining the sale price of their home and it’s one less thing you have to worry about.
MYTH 4: YOU WON’T QUALIFY FOR A MORTGAGE IF YOU HAVE STUDENT DEBT
So, you have enough money saved to cover the costs of purchasing a home, but you’re still paying down that pesky student loan – what should you do? Don’t feel discouraged if you’re still paying off student loan debt! The amount of money you owe will not impact your ability to be approved for a home loan, however, your minimum monthly payment will. If your monthly payment is low in comparison to your income, your debt-to-income ratio should be low enough to qualify for the loan you’d like. To learn more about how lenders determine your debt-to-income ratio click here.
MYTH 5: YOU NEED A HIGH CREDIT SCORE
Bottom line, your credit score doesn’t need to be perfect to qualify for a home loan. The higher your credit score the more loan options you’ll qualify for, but there are still plenty of possibilities if you’re in the process of repairing your credit. Just keep in mind there may be more fees involved. Speak to a lender about your options early on, they can provide you with tricks to boost your credit score and get you on a path that fits your budget.
Still have questions about whether or not homeownership is right for you? Contact us! It’s never too early to start the conversation with a realtor. We can answer any concerns you may have about the process and connect you with one of our trusted lenders to help you assess your loan options. Owning your own home may be more attainable than you think!