There are numerous benefits to owning a home such as the ability to increase your net worth or to lower your income tax bill. If you have a fixed interest rate, your mortgage payment will be the same for the life of the loan. A predictable housing payment can be ideal for those trying to plan for their long-term financial goals. However, if you believe these common myths, you may be needlessly keeping yourself from obtaining those benefits.
You Need a High Credit Score
It is possible to get a home loan with a credit score as low as 580. Of course, it is generally easier to get a loan with a higher score, and lenders may reserve the most favorable terms for borrowers with scores of at least 700 or higher. Most financial institutions will be happy to discuss any credit concerns that you may have and how they can impact your ability to get a loan.
You Have to Put Down 20%
If you are planning on getting a traditional mortgage, you will typically need to put down 20% of the home’s purchase price prior to closing. However, many government mortgage products require down payments of 5% or less. Putting down less than 20% can actually have some benefits. For instance, you will have more money to furnish, upgrade, and maintain your new house. You will also have money available to pay down credit card or other debt, which can make it easier to afford your home loan.
Student Loan Debt Makes It Impossible to Get a Loan
It’s not uncommon for individuals of all ages to have federal or private student loan debt. While a lender will evaluate this debt when making a lending decision, it will not automatically disqualify you from getting a loan. In some cases, lenders may disregard student loan balances that are due to be paid off in the next 12-18 months. Typically, you’ll need a debt-to-income (DTI) ratio of less than 36% after a projected mortgage payment is factored in to get a traditional loan. There are a multitude of home loan products designed to help as many people as possible finance the purchase of their new house or condo, even if they have a lower credit score or other types of debt. Therefore, don’t hesitate to speak with a lender, broker, or other financial professional about what you can do to buy a house in the near future.
Not sure when to invest in a new home? Check out our other article here for more information.