MythBusters: Mortgage Special

MythBusters: Mortgage Special
Article Excerpt

Buying a home isn't as hard as you may think. Let's look at myths about down payments, credit scores, and renting vs. buying!

There are some widespread misunderstandings about what it takes to qualify for a mortgage. There are also myths about when it’s financially worth it to purchase a home instead of renting. You may think we’re a bit biased toward wanting you to purchase a home (since we’re a mortgage company), but just hear us out.

Let’s look at what it really takes to get pre-approved, and see examples of when buying is in your best financial interests. We’re in a different homebuying environment than when your parents or grandparents bought their first home!

Woman struggling with finances

The 20% down payment

Myth: “You have to make a 20% down payment to qualify for a mortgage."

Ever heard this one? Our fact check meter says “pants on fire” – it’s completely false. In reality, you can actually buy a house with zero dollars down. The USDA loan program (for buyers in rural areas) and the VA loan program (for vets, active service members, and their spouses), both allow their borrowers to purchase with zero down.

If you’re not purchasing in a rural area and you’re not a veteran, you still may be able to buy a home with zero down. There are options called down payment assistance (DPA) programs that roll a down payment into your loan amount (which you pay back in monthly installments), and there are other DPA programs that will just grant you the down payment without having to pay it back.

» CHECK IT OUT: The best Texas down payment assistance programs

In addition to the USDA, VA, and DPA programs that allow for zero down, there’s another loan option you may have already heard about: the FHA program. You may hear people call it “the first-time homebuyer” program. That’s because it’s available to all first-time buyers and only requires a 3.5% down payment. On a $200,000 home, you’d only need to put $7,000 down.

» READ MORE: All about the FHA Program - Eligibility, Benefits, & FAQ’s

Even a conventional loan doesn’t require a 20% down payment. Typically, you can make a down payment as low as 5% on a conventional loan. With a conventional loan, when you reach 20% equity in the home, you no longer have to pay private mortgage insurance. That’s one big advantage with a conventional loan compared to an FHA loan.

» READ MORE: All about Conventional Loans - Eligibility, Benefits, & FAQ’s

The FHA program’s private mortgage insurance never goes away, even after you have 20% equity in the home. But still, the FHA program helps so many first-time homebuyers buy their first property due to its minimum credit score and down payment requirements.

The 700+ credit score

Myth: “You need a credit score of at least 700 for buying to be worth it."

Well, not only can you qualify for a mortgage with a sub-700 score, but buying a home with a sub-700 score is still better than renting in most cases. However, it is true that you probably won’t get the very best possible interest rates with a lower credit score. When lenders determine the rate they’re willing to give you, they’re trying to decide how much risk you have of not being able to make your mortgage payments one day. So it makes sense that rates aren’t as good when your score is lower.

Young woman with laptop and credit card

These minimum score requirements aren’t set in stone for everyone though. There are other factors that go into being eligible for a mortgage, such as your debt. And sometimes those other factors have to be offset by a higher credit score.

» READ MORE: “I messed up my credit score - now what?”

You’ll be stuck for a long time

Myth: “You’ll lose money buying a house if you don’t stay in it for a long time."

This one’s ambiguous, as it doesn’t really define how long you need to stay in a house in order to come ahead of renting. Some people assume that since a normal loan term lasts thirty years, you need to stay in it for that long in order to not lose any money.

But actually, you can beat renting in only three to five years. In order to calculate it for your own situation, it’s easiest to get in touch with a mortgage adviser. There are more factors in the equation than you may realize right now. But you can also check out this example scenario which compares 45 months of renting to buying a $150,000 house.

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See what you qualify for!

Our local Texas advisers are ready to help! See what you qualify for and whether buying a home is worth it for you right now. Get started on a same-day pre-approval in just 90 seconds.