Getting a loan to buy a home is, in many ways, a confusing process. Part of what makes mortgages so confusing is their variety: different lenders, loan types, interest rates, down payments, and other factors all influence what a mortgage looks like. With variety comes myth making– people who talk about their mortgage process often mislead others who are looking to buy a home.
Before you start asking around about how to buy a home, be wary of these three rumors and myths that simply aren’t true:
- Renting is Cheaper
Some people simply never attempt to buy a home because they believe the process is too expensive. While there are high costs associated with purchasing real estate, over time, buying is actually more cost effective than renting. In fact, according to ThinkBank.com, the costs of renting are offset after only five to seven years of owning a home. In other words, after five or so years, buying a home is the smarter choice. Homeownership also lets residents avoid sudden increases in rent. Unless you move frequently, buying a home will likely save you money in the long run.
- You Need a High Credit Score
Another common myth associated with the home buying process is that a person’s credit score needs to be virtually perfect before a buyer will qualify for a loan. However, there are different types of mortgages that make homeownership accessible to people with lower credit scores. The minimum credit score for a conventional mortgage is just 620, and FHA loans will accept even lower scores. An FHA home loan requires a score of least 580; you can buy a home with as little as 3.5% down as long as you’ve refinanced your primary home up to 97.75%. If you have a lower credit score, you may need to save a little longer for a down payment before you can take out a loan, but this doesn’t mean that you’ll never be able to buy a house. If you’re worried, look for simple ways to improve your credit score, and get saving!
- Pre-Qualified and Pre-Approved Mean the Same Thing
Another common misconception among inexperienced home buyers is thinking that pre-qualification means that they’ve been approved for a loan amount. Unfortunately, pre-qualification is not a guarantee that a bank will agree to that loan amount once you’ve found a home you’d like to buy. Think of pre-qualification as an estimate of how much a lender will loan you, and pre-approved as a set limit to what you can afford.
Shopping for a home can be a mystifying process. Don’t believe these three myths to stop waiting and get started on your home ownership dreams.