1. You Do Not Need 20% Down Payment To Buy A Home
The first step in the home buying process is to get pre-qualified or pre-approved for a mortgage. A good lender will understand your situation and recommend the best mortgage for you. The following loan programs are for buyers of their primary residence.
There are several types of loans and different down payment requirements.
In some states, there are first time home buyers programs that give grants and settlement assistance. Most require that you complete a homebuying counseling program. So check with your state or community housing agencies to find out what type of first time home buyers programs exist.
If you are a veteran or active service and meet the VA requirements, you can purchase a home with 0 down payment.
Federal Housing Administration (FHA) loans require a down payment of only 3.5%.
There are conventional loans with down payments of 3%, 5%, or 10%
You will also need closing cost with all these loans except the first time home buyers loan and the VA home loan.
Keep in mind that if you don’t pay 20 percent down, you may be required to pay mortgage insurance (MI).
2. Pre-Approval Is The Same As Pre-Qualification
Pre-qualification and pre-approval are not the same things. To get pre-qualified, you provide your lender with basic financial information about you, such as income, debts, assets, and employment history. The lender uses this information so they can determine what kind of loan you can qualify for and estimate how much you’d be eligible to borrow.
The lender will require additional documentation and verification of all information you provided. The lender will determine if you are pre-qualified after a complete review of all information. You’ll have to complete a mortgage application after your lender evaluates your financial background and credit ratings.
Sellers and real estate agents will not take you seriously as a home buyer if you have not been pre-qualified or pre-approved. Get pre-approved to put yourself in the best negotiating position.
3. Down Payment Is The Only Up Front Cost To Buy A Home
When purchasing a home you will need enough cash to pay the earnest money deposit, down payment, closing costs, moving costs, and possibly repairs after you purchase the home. In some markets, you may need cash to pay for inspections and the appraisal upfront. In addition, you may want to purchase new furniture or appliances. Buyers need to make sure they have enough money to cover all these costs.
It is important that buyers do not purchase anything on credit during the home buying process. Buying something on credit might change your financial ability to qualify for a home loan.
4. Home Buyers Need Excellent Credit
You don’t have to have excellent credit, you just need good credit. In most cases you can get a loan with a credit score of 640 or higher, in some cases, you can qualify for a loan with a credit score as low as 580. In order to get the best mortgage rates available, you usually have to have excellent credit. The lower your credit, the higher the interest rate you will pay, if it’s low enough, you will not be offered a loan at all.
5. Income Determines How Much You Can Borrow To Buy A Home
In fact, it is a combination of your income, credit score, and your debt. Lenders will calculate something called debt to income ratio. There is a cap on your debt to income ratio. If your debt to income ratio is too high, you will not be able to get a mortgage.
6. Seller Pays All Closing Costs
Closing costs are usually paid by the seller and the buyer. Everything is negotiable in real estate transactions. Typically there is a customary closing cost split between the buyer and seller. Ask your real estate agent about customary closing cost split in your community.
Is some cases the seller may be willing to pay some or most of the buyers closing costs. However, it must be negotiated between the buyer and seller.
The type of real estate market, offer price, and seller’s motivation determine whether they are willing to pay buyers closing costs.
7. List Price Is The Selling
The price a home sells for is dependent on the current real estate market. In a sellers’ market, it is common for homes to sell above listing price. In a buyer’s market, it is common for homes to sell for less than list price. Are you in a buyer’s market or a seller’s market? A good real estate agent will let you know about the local real estate market.
The motivation and equity in the home play a big role in the sales price. Motivated sellers will sell their home for less than the asking price. On the other hand, some sellers do not have enough equity to sell their home without writing a check at closing. These sellers will overprice their homes in hope that some “sucker” will buy their homes.
An experienced real estate agent with knowledge of the market can help you make the right decision when it comes to making an offer.
8. All Real Estate Agents Are The Same
Real estate agents are just like any other profession. There are great real estate agents and some, not so great. You need an agent that knows the market and has a lot of experience. Experience comes in the form of how many transactions do they complete per year. Some real estate agents work only part-time as a real estate agent. Find an agent with experience, one you can trust, and one you can work with.
9. Seller Will Make Repairs To Their Home
It is critical to get the appropriate home inspections prior to purchasing a home. After inspections, your real estate agent will assist you to negotiate repairs to be made by the seller.
The buyer and seller must come to an agreement acceptable to each other. Check with your real estate agent to understand the conditions in your purchase agreement if the buyer and seller cannot reach an agreement.
10. It’s Cheaper To Rent Than Buy A Home
This is one of the most controversial topics surrounding buying versus selling, and it really does come down to a personal decision. There are benefits to buying a home and there are benefits to renting a home. You probably should not buy a home if you do not plan to stay in the home for at least 3 or 4 years. It will cost you about 8% to 10% of the sales price to sell your home. If homes are increasing in value by 3% per year, it will take you 3 years to break even.