Sterling Properties

Looking to buy your first home? It’s easy to fall prisoner to common misconceptions about mortgages. Worried about cobbling together a sizable down payment? Concerned about your aching credit score? It doesn’t have to be so complicated.

Here are five myths we’ve safely busted about getting your first mortgage.

Myth #1: You need 20% for a down payment

There are a variety of programs available for first-time homebuyers, including — for those with a higher credit score — zero-down mortgages. The basic breakdown is conventional, FHA, and USDA.

Conventional loans are widely available and operate with the least restrictions. Both interest rates and down payment percentages vary based on the market and your credit score. You can snag a conventional loan for as little as 3% down, though you’ll need to pay Private Mortgage Insurance for a period of time. This adds to your monthly payment, but gets you into a home sooner.

Federal Housing Administration (FHA) loans are backed by the federal government. This program exists to make homeownership easier for first-timers and those with a lower credit score. In most cases, FHA loans will require a 3.5% down payment.

USDA loans are backed by the U.S. Department of Agriculture, and encourage development in rural areas. These mortgages are limited based on the location of the home you want to buy, but don’t require any down payment at all.

Myth #2: You need an ultra-high credit score

Whether your mortgage is conventional, FHA, or USDA, there are options available for those with a lower credit score. Often, deficits in one area can be made up in another — for example, a lower credit score might mean a higher down payment or a higher interest rate. But that doesn’t necessarily price first-time buyers out of homeownership.

Myth #3: Pre-approval is the same as approval

The vast majority of mortgage lenders will issue something called “pre-approval,” along with the maximum amount you can spend on a home.

Your pre-approval will last for a certain period of time (usually 60 days), during which you can make offers on homes. Once an offer is accepted, your loan will go into underwriting. At this time, a loan officer will go through a series of provided documents and issue a final determination of your loan.

Myth #4: Renting is cheaper than owning a home

Imagine if, each time you made your rent payment, your money was stashed away in an envelope for you to collect upon move out.

When you own a home, that’s nearly exactly what happens. Your monthly payments, minus interest and fees, go toward an appreciating investment. When you sell your home, that money goes back in your pocket.

To boot, mortgage payments are often cheaper than rent — although you’ll need to add a range of utilities, if your landlord includes water, sewer, gas, trash removal, or electricity in your payment. Still, many homeowners find their payments are hundreds of dollars lower per month, all of which can be socked away for repairs as needed.

Myth #5: The process is overwhelming and complicated

First-time homebuyers often walk away from the table because the process feels too complicated. But these homebuyers aren’t using the right resources.

An experienced real estate agent can answer your questions — even about mortgages — and help determine the right path for you. Your agent will file paperwork, organize your closing, and give you sound, professional advice to protect your investment and your bottom line.

Learn more about our team of agents here, or give our office in East Tawas a call at 989-362-4585.