Top 5 Myths About Home Buying Today
NEW YORK ( MainStreet) The fact is, buying a home today is absolutely, totally different from buying one in 2003. And right there is why so many myths swirl around a process that, in many ways, is utterly novel from what it has been. What was true isn't anymore.
Be ready to be shocked as we bust some myths below.
Myth 1: You need a 20% downpayment even to think about buying a home, and that means maybe a couple hundred thousand in cash for a would be Manhattan apartment hunter.
Totally false. "A down payment can be very low," said Joe Parsons, senior loan officer with PFS Funding, a mortgage banker in Dublin, Calif. "There are conventional loans requiring just 3% for a down payment or even zero - the VA home loan program for veterans will cover 100% of the purchase price."
Maybe five years ago, in the belly of the beast of the mortgage meltdown, 20% was in fact a necessity, but today most lenders are way more flexible. And if yours isn't, go elsewhere.
Myth 2: Only those with golden credit need apply for home mortgages.
Rubbish. The past half dozen years have been rough. High unemployment, a housing implosion, you know the realities. So do lenders, and an upshot is a heightened willingness to overlook past pecadilloes such as a foreclosure.
"Credit dings and blemishes, even a bankruptcy, short sale or foreclosure do not prevent you from getting a loan, even with a very low down payment such as 3.5% for an FHA loan," said Bruce Ailion, a realtor with RE/MAX in Georgia.
A new FHA initiative called "Back to Work" explicitly cuts the time to qualify for a new mortgage after a foreclosure, bankruptcy or similar to as little as one year for borrowers who can prove their past financial difficulties were due to extenuating circumstances out of their control.
Myth 3: Fixed rate mortgages are the only way to go.
Not true, said David Reiss, a professor at Brooklyn Law School who specializes in real estate. He elaborated: "The necessity of getting a 30-year fixed rate mortgage is one of the biggest myths about homebuying. The average American household stays in their home for about seven years. Typically, 30-year fixed rate mortgages have higher interest rates than adjustable rate mortgages (ARMs). Homebuyers should take a hard look at their plans for the new home."
Only 6.5% of applications for mortgages in a recent period were for ARMs, according to the Mortgage Bankers Association. A typical ARM went out at 3.21% interest, versus 4.69% for a typical 30 year fixed rate. That adds up to a difference worth tens of thousands of dollars over, say, a seven year probable life of the loan.