Are you putting obstacles in your own path when it comes to buying a home?
As realtor Lori McShane explains in her latest video, “Five Myths of Homebuying,” many buyers are creating hurdles for themselves, and have accepted some common buying myths that are just that—myths. In a video interview with Michelle McConville, a loan officer at Fairway Independent Mortgage Corporation, Lori discusses those misconceptions and breaks them down into five hurdles, each of which can be overcome, she says.
Myth #1—You need 20% down to buy a home. “This is a really common myth that keeps people from buying,” says McConville. “You don’t need 20% to buy a home.”
McConville added, “There are many programs available where you can purchase a home with as little as 3.5% down.” She acknowledges that any time one pays less than 20% down, you have mortgage insurance, but says, “You should never let a mortgage down payment stop you from purchasing a home.”
Myth #2—You must have a perfect credit score. “Not at all,” says McConville.
“A perfect credit score is nice, but it’s not a requirement,” she explains. “With some programs, you can get into a home with a credit score of 620.” McConville also stressed that she can look into a credit status today, and then offer the buyer suggestions as to how that credit rating can be improved.
“That way,” she said, “when you’re ready to step up and buy that home, your credit can be improved one step at a time.”
Myth #3—Now is a bad time to buy a home—As McShane herself explains, three of the last five recessions have brought home prices down. In fact, the 2008 recession brought prices down an average of 19.7 percent. In addition, during the 90s, distressed homes and loans dominated the market place, but today, home loans are much more stable. McShane added that a 2019 survey noted that most Americans saw real estate as the best long-term investment, over gold, stocks, and savings accounts. She also noted that Goldman Sachs, Wells Fargo, Morgan Stanley and JP Morgan all saw a “v” shaped recovery coming in the 2020 US Gross Domestic Product.
The 2020 Wells Fargo Investment report of March 17, 2020, also said, “We do not expect a repeat of the severe recessions of 2008 and 2009, because the virus and oil shocks are not endemic to the financial system but are, rather, external. Once the virus infection peaks, we expect a recovery to gain momentum into the final quarter of the year, and especially, into 2021,” McShane said.
McConville also noted that the coronavirus pandemic is a “temporary situation,” and that mortgage rates are still very low.
‘Its a great time to buy,” said McConville, “in the sense that a lot of people who might be your competition may be on the sidelines these days, so if you’re taking an active approach, it definitely puts you in a better position.”
‘With rates remaining low, it’s a great time to buy,” McConville added.
Myth #4—A pre-approval is not necessary—”If anything,” said McConville, “I feel that the pre-approval is probably the most important part of the process.” As she explained further, “If you start with a pre-approval, it does a number of things. One, it lets know that you are eligible and able to purchase a home. More importantly, she continued, the pre-approval lets the buyer know what the monthly payments are going to be, and how much cash will be needed for any closing costs.
Most importantly, McConville noted, a pre-approval lets the buyer know what price range they should be looking for.
“You don’t want to be looking at million-dollar homes,” she said, “if your pre-approval comes back and says you’re only eligible to buy homes at half that price. It takes a lot of the guesswork and assumptions out of the equation. Then, when you find the home that you want and can afford, it’s smooth sailing.”
Myth #5—It’s cheaper to rent than to own—This final myth is, of course, common, said McShane, who demonstrated that nationally, the percentage of your income needed to afford median rent is 27.7 percent, while a mortgage payment requires 17.5 percent of your monthly income.
‘This can also vary depending on where you live,” said McShane. McConville agreed, and added that there are many variables including supply and demand. McConville also noted that rents are subject to being raised as land values change, but that many mortgages are fixed at a steady monthly rate.
And, said McConville, “Every month that you’re making a payment on your home, you’re creating more equity and value, as opposed to paying your landlord’s mortgage, if you’re renting.”
As McShane noted, “You’re paying a mortgage either way. Why not have that mortgage be yours?”