Five First-Time Home Buyer Mortgage Financing Myths: Outsmart These Misconceptions Today!
Purchasing a new home can be a nerve-wracking process, especially if you are a first-time home buyer. Buying a home is possibly one of the biggest financial ventures that you are likely to make once in your lifetime. If you are in the market to buy a home for the first time, you probably have some questions about the best method to find and finance your dream house. The process of seeking approval for mortgage financing might seem daunting to a first-time homebuyer. From determining your home loan eligibility to calculating your equated monthly installment (EMI), a lot is in the process that requires keeping your eyes wide open. As you are in the market for the first time, you may come across a lot many myths related to mortgage financing. This article aims to make sure that you have the education and support you need to outsmart the misconceptions related to first time home buyer mortgage.
#Myth -1: You Must Not Put Less than 20% Down Payment
This is probably one of the most common myths that first time home buyers come across while they opt for mortgage financing. It’s true that a down payment above 20% means you do not require paying for private mortgage insurance (PMI) but this is not a compulsion for everyone. In fact, putting less than 20% down payment can be a financially sound option for borrowers with great credit and a steady income, allowing you to start investing and building equity sooner. There are approximately 72% of home buyers who put less than 20% down payment on their homes. First-time homebuyers seeking a mortgage loan can make less than 20% down payment if they have a good flow of income and a high credit score. At Lending Assets, we offer low down payment options. If you are a first time home buyer in Modesto looking for mortgage financing options, you can come to us.
Before moving to the next point, it is important to make emphasis on the fact that low down payment for home buying isn’t a risk.
#Myth -2: You Are Not Eligible to Get a Mortgage If You Have Student Loans
That’s not true. If you have a student loan and you are willing to get mortgage financing for home buying, then your eligibility will primarily depend on the monthly installment you pay. The lender won’t look at how much your total student loan is, instead, your monthly installment pay each month towards that loan will be seen and a proportion will be made on your monthly debt and monthly income.
It is important to know in this regard that when lenders consider any type of debt, they look at your monthly debt-to-income ratio (DTI). Your debt-to-income ratio is found by dividing all your monthly debt payments by your gross monthly income. In other words, all your payments for things like credit card debt, auto loan payment, and your monthly student loan will be added and combine with your future mortgage payment. After that, the value will be divided by your gross monthly income.
Debt-to-Income Ratio (%) = Monthly Debt PaymentsMonthly Gross Income x 100
Your DTI will be the deciding factor whether you are eligible for a mortgage home loan or not. However, it doesn’t mean that if you have a student loan, you cannot opt for a mortgage home loan.
#Myth -3: You Must Avoid Adjustable-Rate Mortgages (ARMs)
This is also a big myth. Whether to opt for adjustable-rate mortgages vary from one homeowner to another. Though after the 2008 crisis, many home buyers were cautious of adjustable-rate mortgages (ARMs). But, if you are planning to sell (or refinance) your home within 10 – 15 years, then opting for an adjustable-rate mortgage instead of a fixed-rate mortgage could save you thousands. It’s more common that you could even imagine.
Myth -4: You Cannot Qualify for Any Savings Programs
That’s not true always. The Federal Government and other government-sponsored entities have created a variety of affordable lending options. All those programs allow you to qualify for more attractive mortgage pricing. Eligibility might be based on your location, the method you earn, the median income in the area where your home is located, or your first time home buyer status.
So, outsmart this misconception today. As a first time home buyer, mortgage financing might seem complex but you need to remain acquainted with the right facts always.
#Myth -5: Your Pre-Approval Mortgage Amount Is Same for Any Property You Buy
This is another important thing that necessarily needs clarification. Even if you have been pre-approved to purchase a home at a certain price, the specific property itself can impact the amount you can ultimately borrow. For instance, the cost and terms of your home mortgage might get affected by things like property type, property tax rates, homeowner’s association fees, local mortgage discounts, and competitive market. You need to know this fact and must not be overly confident with your pre-approved mortgage amount.
When you are in the home buying market for the first time, it’s very important that you have the right information on your side. Be sure to outwit all kinds of misconceptions before actually making your first home purchase in Modesto.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.
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