Buying a home for the first time is an exciting process. It can also feel overwhelming pretty quickly for many homebuyers. There’s an abundance of information available but sorting through it can be daunting, especially when some of it is conflicting (“is it cheaper to rent?”) or confusing (“do I have to have perfect credit?”) about the process.
One of the things we love about our job as real estate agents is educating first time homebuyers, busting myths and misinformation as we walk through the process with them!
Here are some of the most common misconceptions first time homebuyers should understand:
1. Renting is cheaper
The cost of renting has risen over the last few years with the cost of mortgage payments around the same as paying for a rental. Saving money by renting rather than buying is now more difficult than ever. Homeownership does include other costs: repairs and maintenance for example, but it’s also an investment.
2. Down payments are set
Homebuyers often look at the down payment required for a mortgage and struggle to understand how to meet the demands of a 20% mortgage. The truth is different programs provide different down payment options, including low and no down payment options.
3. You need perfect credit
While it’s true that better credit usually means a better interest rate, you can still buy a home with a less than perfect credit score. One option is to provide a higher down payment or to try and explain your credit history to a lender. Some first-time homebuyers can use an FHA loan with a credit score of around 500, though these are usually for approved homes and often only found in specific parts of the U.S.
4. There are no mortgage programs for first-time buyers
A first-time buyer has the chance to take part in many first-time buyer programs. The FHA, USDA, and VA all have programs designed to help you with obtaining a low-interest rate often with a 10 percent down payment.
5. If you pre-qualify, you will automatically get approved
Unfortunately, many home buyers (not just first time homebuyers) get confused by this distinction. Pre-qualifying and pre-approval are two different steps within the homebuying process.
Pre-qualifying is a simple process, often done over the phone. It requires no paperwork or financial paperwork but gives homebuyers a general idea of which mortgages they might be eligible to use. This is a helpful step for homebuyers to understand price ranges when searching for homes.
Pre-approval is a more detailed process involving a mortgage application and the required paperwork for underwriting. It’s at this stage that homebuyers have more concrete information around interest rates, terms, and what kind of mortgage they will use.
6. Credit scores are lowered when mortgage shopping
Approved lenders should be aware of the decision made by FICO about mortgage shopping. The new regulation stated that during a 30-day period any individual can have their credit pulled by as many mortgage lenders as possible to obtain the best interest rates. In other words, during this time period there is no negative impact on your credit score.
7. You should find a house first
We understand how thrilling it is to house shop. There are few things more exhilarating than looking at living spaces and imagining yourself living there. However, this leads to heartbreak more often than not. Sorry, the first step is to understand your financial options before you ever set foot in an open house. This will help you understand your price range, the additional costs associated with buying a house and the mortgage product you will have.
8. The asking price is the price you pay
Virtually no home buying process takes place without negotiation. In fact, very few home buyers ever pay the exact asking price. Depending on whether the market is a buyers’ market or a sellers’ market, you could pay a lot more or less. Additionally, there are closing costs and fees for third parties that are part of the final price.
9. You should only take the maximum loan amount
It may be tempting to look at the very top end of your price range while home shopping. This could be ok in some instances, if perhaps you KNOW you are getting a raise or additional income in short order. However, most homebuyers do not want the added stress of a maxed out monthly payment. Instead, only take the amount you feel comfortable paying back on a monthly basis; one that allows you still save for repairs and maintenance too.
10. You can lower costs by not using a realtor
This is a big one and truly unfortunate as homebuyers usually do not pay REALTOR fees. Those fees are usually part of the closing costs paid by the seller. The process of buying a home is already complicated and can easily become stressful without an agent.
As experienced real estate agents in Middle Tennessee, we take pride in offering a seamless and smooth home buying process because our team is dedicated to providing you with an elite level of service. We also have information that’s not available to the public such as disclosures, past sales history, dates and prices of homes recently sold nearby, and more.
If you are ready to find your dream home, call us today to not only find the home of your dreams but a community that fits your needs and lifestyle!