There are many common misconceptions about buying a house. It’s important to research as much possible to make sure you’re making a good decision, but some concerns are easy to eliminate. Remember that the process for buying a home has changed in recent years, so do ask advice from your friends and family, but remember that the process may be different from what they experienced when they bought a home.
Common misconceptions about buying a house
- You need 20%for the down payment.
- You need perfect credit to qualify for a loan.
- Your income determines how much you can borrow.
- The seller pays closing costs.
- Pre-qualifying means your pre-approved.
- The down payment is the only up-front cost.
- A 30 year fixed rate mortgage is the best mortgage option.
- You can’t qualify for a loan with student loans.
- You should find a house before applying for a loan.
- Seller makes all repairs found by the home inspector.
Financing and Down payment:
There are many option for financing when buying a home. Putting 20% down will save on your monthly payment since you won’t be required to have Private Mortgage Insurance(PMI). Rates vary for PMI, depending on which type of financing you choose. For the lowest down payments, a lender may recommend FHA, Rural Development or other options offered by different lenders. A Rural Development loan is only available for homes in certain locations (counties or sometimes only in certain parts of a county). RD loans offer an up-front fee plus a monthly charge.
FHA financing requires 3.5% down and a fee for financing that can be added in to the loan amount. There is an additional monthly fee for PMI. Typically, Rural Development and FHA financing allows a lower credit score, even though interest rates are comparable to conventional financing. Your income will be a factor in determining how much you qualify for, but just as important is your monthly expenses. There is a ratio that’s acceptable with each loan type.
Pre-qualification / Pre-approval:
You should go ahead and speak with a lender to make sure you understand how the process works, and to get pre-qualified for a loan. This only means that, based on what you tell the lender, you can get approved for the amount they tell you. This can change as you get in to the application and approval process. If you have student loans, be sure to discuss this with the lender, as this can have an impact on the amount you can borow.
Inspection / Repairs:
After you find a home, there is a due diligence period, to allow for a home inspection (paid for by you). When the inspector completes the report, you can request repairs from the seller. This is another negotiation period, and the seller may make all or some repairs, offer a reduced sales price, or not be willing to offer any concessions. After the seller decides, you can decide if you’re willing to accept the decision, or terminate the contract. If you terminate the contract during the due diligence, you should be entitled to the return of your earnest money.