The idea of purchasing a home is exciting, but many may feel like they’re not prepared to take this big step. Myths about mortgages and finances may be some of the biggest hurdles stopping renters from becoming homeowners. Let’s debunk a few common mortgage myths that potential borrowers face.
A 20% Down Payment Is Needed
Many believe that a 20% down payment is the golden rule when it comes to buying a home and anything less is nonnegotiable. A 20% down payment isn’t required, but if homebuyers pay less than 20%, then they must pay private mortgage insurance (PMI) in case they default on their loan. Homeowners can cancel their PMI payments once the property reaches 20% equity.
Most potential homeowners can pay as little as 3% down with a conventional loan. There are also multiple lender programs for those who can’t make a 20% down payment.
A Perfect Credit Score Is Required
An applicant’s credit score is a significant factor when they apply for a mortgage. It can affect the loan’s interest rate and whether a potential borrower gets approved for a loan. However, this doesn’t mean that an absolutely perfect credit score is necessary; most conventional loans require a minimum credit score of 620, but this can vary from lender to lender.
Like down payments, there are multiple programs to help first-time homebuyers who have lower credit scores.
Having Debt or Student Loans Will Get in the Way
These days, debt seems to be a natural part of life. Shift Processing, a payment processing company, reports that 80% of Americans have some kind of debt. Debt doesn’t rule out the possibility of obtaining a mortgage; most lenders will review potential borrowers’ debt-to-income ratios when deciding if they qualify for a mortgage. The greater the debt-to-income percentage is, the riskier the applicant. Potential borrowers should aim for a debt-to-income ratio of less than 50% before applying for a mortgage.
Applying for a mortgage can be intimidating for many first-time homeowners and applicants, but you may find that you’re more prepared than you think! At HND Realty LLC, our team of professional agents is dedicated to providing stress-free real estate services and support. We want you to approach your decision to buy a home with confidence, so we provide extensive resources to help guide you through the process. Contact us today to learn more about our services or featured properties for sale.