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4 Home Buying Myths to Stop Believing Now

Summer is a popular time to purchase and sell property, thanks to lighter work and school schedules. National Moving Day is the Tuesday after Memorial Day and many moving companies see a spike in activity on this day as many families prepare to move immediately after the holiday while kids are on summer break.

As National Moving Day approaches, a greater number of potential homebuyers may consider purchasing a home. If you’re contemplating buying a home, ignore the following myths:

#1 – A 20% Down Payment is Required

Many people are under the impression they need to commit a down payment of 20% or more when buying a home. For that reason, would-be homebuyers put off making a purchase.

However, much smaller down payments are possible. In 2021, the average down payment was 12%—and just 6% for homebuyers under 30. Some buyers can even qualify for certain loan types and programs that require less than 5% for a down payment. In particular, military members or veterans qualify for loans with extremely low down payments.

A 20% down payment does have its advantages, such as lower monthly payments and eliminating private mortgage insurance (PMI) which is required for those who put down less than 20%. But for those who are unable to present a 20% down payment, there are many options.

#2 – Homebuyers Must Be Debt-Free with Perfect Credit

Many people mistakenly believe debt or a lower credit score can prevent them from obtaining a mortgage. In reality, while these two factors do matter, neither is the sole determinant in the home loan process.

Debt is only one factor considered when determining loan eligibility. What matters more is your debt-to-income ratio, which is a figure that compares how much you earn to how much you owe. Mortgage applicants can have student loan debt, medical debt, or other types of debt when purchasing a home, so long as their debt-to-income ratio is favorable. Calculate your DTI here.

A good credit score is always preferable, however your exact credit requirements will vary depending upon the loan. Some loan types are more advantageous for home buyers with lower credit scores. For instance, first-time homebuyers can qualify for loans that require a 3.5% down payment with a credit score of 580.

#3 – The Lowest Interest Rate is the Best Choice

On the surface, the mortgage with the lowest interest rate may seem like the obvious choice, but this may not truly be the case. Often, loans with the lowest interest rates are adjustable-rate mortgages, meaning the interest rate will fluctuate over time. While fixed-rate mortgages typically have higher interest rates compared to adjustable-rate mortgages, the mortgage payment will remain constant for the life of the loan. This can be very beneficial during market fluctuations as the loan payment will not change.

Before choosing a mortgage based on interest rate alone, contemplate how long you plan to own the home, current market conditions and your family’s future financial prospects. Discuss these items with your banker to determine the type of mortgage that is best for you.

#4 – Interest Rates are too High

Many homebuyers worry about inflation and rising interest rates. While interest rates may have risen slightly recently, they have been relatively stable and low for the past few years. As of October, Freddie Mac reported an average mortgage rate of 3.09%, compared to 10.13% in 1990.

If you are interested to purchase a home, it’s best to work with a community lender and banker you can build a relationship with. Buying a home can be stressful, however your banker can guide you through the process and recommend the best loan for you. As a new homeowner, your banker will be a valuable resource to you in the coming years.

For more help ensuring you’re fully prepared for all that homeownership entails, consult our Considering Homeownership? blog and get in touch with an Allegiance Banker today.

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