Mortgage matters: Three myths about buying your first home
Jul. 2—For many, homeownership is freedom. Whether you're a first-time homebuyer or looking to purchase your next property, you have probably heard some homebuyer "rules" that aren't necessarily true. Consider this a public service announcement regarding your current homebuyer options.
Myth One: A 20% down payment in cash is required.
Truth: Down payments can be as low as 0%, and the amount and source of funds can vary.
When it comes to your asset situation, you might think you don't have enough to buy. Enter down-payment assistance for homebuyers, especially first-timers: grants, community programs, nonprofits and even government programs are available.
If you have a generous family member, they can formally gift you funds. A little documentation makes this an incredible option. Have retirement and investment accounts? You can choose to sell some stock, liquidate the portfolio or, based on your account fund, perhaps borrow. In any case, talk with financial experts BEFORE you make any big money moves — licensed mortgage lenders, tax professionals and financial advisors are a great starting point.
Bonus: Are you a current homeowner looking to sell? You probably plan to use your current home's value or equity for a down payment. You can determine this value before closing on the sale of your current home. In many states, you can get a bridge loan on the property you're selling in order to purchase your next residence.
Myth Two: You must work a high-paying, 9-to-5, full-time job to qualify.
Truth: Whether retired, self-employed, a recent grad, a "standard W-2" or a little of everything, there are options.
What if you are self-employed or a business owner? A recent grad holding an employment offer letter? A retiree blissfully enjoying the good life? Yes, any of you can be a homeowner. A buyer's income can vary as much as the housing inventory. With some documentation for a paper trail, many unique income streams can put you on track to go from tenant to owner.
Bonus: Are you sitting on a savings nest egg with no plans to work again? That's okay! With a little calculation and common sense, lenders can consider asset dissipation. This is like planning to "pay yourself" from your retirement and investment funds.
Myth Three: If you don't have perfect credit or an 800+ score, don't even bother.
Truth: Financing exists for scores in the 600s. Lower score? Credit repair pro-grams exist!
We have good days and bad. A missed bill, a bad medical experience or even a complicated divorce can be problematic. The effect on credit can be confusing. No matter the reason, even the worst credit scores can be improved. Many lenders are able to provide a "what-if" report. These reports are detailed action plans: which bill to pay off and what amount to pay. Paying your bills might sound obvious, but this targeted approach is down to the dollar amount for which bill in order to get the exact credit score desired on a timeline. This kind of action plan can save you significant time, money and hassle.
If your credit score needs a little more time and planning, many lenders can recommend credit repair services. While the offerings of a credit repair service can vary, the results can be life-changing. While following their advice and plan may take more time, you'll find that following the dedicated efforts of their professional guidance could put your dream home within reach. (To learn more about credit scores, see the article in the October 2022 issue of HOME.)
If you are considering a mortgage, go ahead and apply. Provide info for the Uni-form Residential Loan Application (URLA) and confirm your buying power with a
pre-qualification and/or pre-approval from a licensed mortgage lender. People with unique financial situations can still find their way home. Find out what works for you!
Three myths about buying your first home
