Buying a house is a big deal. It’s most likely the largest purchase you’ve made to date, so it shouldn’t be taken lightly. But there are also a lot of common misconceptions about buying a home that we are here to debunk.
- A 20% down payment is needed to get a mortgage
- A 640 credit score is required to qualify for a home loan
- It saves money to not use a real estate agent
- It’s cheaper to rent than to buy
- You can skip the home inspection on newer homes
- Lenders checking your credit score will hurt you
- You only need to save enough for the down payment
This used to be the case. A 20%-50% down payment was needed in order to qualify for a mortgage, but not anymore. The government stepped in and created the Federal Housing Administration offering FHA Loans. They are basically insurance for the mortgage loan. So if someone wasn’t able to make their mortgage payments, the FHA would pay mortgage balance to the lender and take ownership of the home. With the FHA backing you, you can get a loan with a 500-579 credit score or higher and a 10% down payment. If you have a higher credit score you only need a 3.5$ down payment to qualify. Keep in mind that you will be paying higher monthly payments because your down payment won’t be as much and the added mortgage insurance.
Borrowers used to need a 640 credit score to qualify for a home loan. But since the FHA Loans were introduced, credit score as low as 500 can qualify for a home loan. Despite this, it can still be difficult to qualify with a low credit score. It’s recommended to get your credit score up to 580 before applying for a home loan.
A real estate agent is so important to have. They help you find houses that you may be interested in, take care of the paperwork it requires to make offers, and negotiate prices based on the aspects of the home. Real estate agents do get a commission but the home buyer won’t be paying that. The seller pays the commission and it is usually built into the cost of the home. It’s also really confusing buying a home. Real estate agents already know what they’re doing and can explain everything that’s happening in layman’s terms.
It’s true that home buying has some upfront costs such as the down payment, closing costs and fees, and mortgage insurance. But over time, about 4-5 years, buying is cheaper than renting. Plan on staying at a property for at least 5 years to make sure buying is cheaper than renting. In Fresno and Clovis, buying is especially cheaper than renting. The cost of rent is usually higher than mortgage payments. In addition, with renting you’re essentially throwing away your money. When you buy, you’ll eventually get that money back when you decide to sell.
Home inspections are necessary for all home because most of the problems that are found are not on the surface, even with newer homes. You can also make your offer contingent on the issues that come up with the home inspection. You don’t want to buy a money pit.
Checking your credit score often can actually hurt it. But if you have hundreds of mortgage companies check your credit score within a 30-day period, it will only count as a single inquiry.
The down payment is only one of the costs you’ll have to pay for when buying a house. You’ll also have the appraisal which is usually between $400 and $500. Sometimes closing costs aren’t included in the home loan, so you should prepare for that as well. Closing costs are generally 2%-5% of the cost of the home. Lastly, you’ll have to pay for the home inspection, which is around $400-$500.
Lenders also won’t approve your loan if you only have the down payment amount in your savings. They want to see at least 2 months of mortgage payments in your savings. Also, owning a home can come with unexpected expenses, so it’s a good idea to have even more savings in reserve if something comes up.