3 Spooky Myths of Home Buying

All of the frights of the fall – like the terrifying calorie count of the handfuls of treats you're scarfing down at the office and the ghouls and goblins lurking at your door – will all be gone before you know it. But some horrors last year-round, including scary myths about buying a home.

Let's take the fear out of a few of them.

1. Spooky myth: You need a 20 percent down payment to buy a home.
Truth: Not every lender requires such a large down payment from every buyer. It all depends on your financial situation, and often your credit worthiness. Buyers often pay a down payment of between 5 and 10 percent. In fact, some Federal Housing Authority (FHA) loans require only a 3.5-percent down payment. There are also programs that help provide down-payment assistance for first-time homebuyers. You'll want to explore all your options.

2. Spooky myth: You’ll never qualify for a mortgage if you have any outstanding debt.
Truth: Just like there are good witches and bad witches, there’s good debt and bad debt. Excessive debt and late payments can crush a credit score, which could mean trouble when it comes to qualifying for a home loan. However, good debt that you’ve dutifully been paying off bit by bit, like school and car loans, can actually help your chances by showing that you’ve been financially responsible. Another key factor is your debt-to-income ratio. Essentially, lenders don't want your housing expense to exceed 28 percent of your gross monthly income, and they don't want your monthly debts (for example, credit card minimums and car payments) to exceed 36 percent of your gross monthly income. This is called the 28/36 rule. If you fall within the parameters of the rule, it's OK to be optimistic about your chances of qualifying for a mortgage.

3. Spooky myth: The mortgage amount I qualify to borrow represents what I can afford.
Truth: This is so wrong, it's blood curdling. Lenders who prequalify you for a home loan are not considering all the facets of your budget, such as child care costs, groceries and utilities. They look primarily at your gross income, your debt and your credit-worthiness. It's up to you to determine your price range based on the monthly payment you can afford to absorb when you consider your take-home pay and all of your monthly expenses. The number you're comfortable with may be lower than the amount the lender has authorized. And whether or not you can afford the monthly payment on the full qualifying amount, you don't have to borrow as much as the bank is willing to lend you.

Keep Halloween scary but take the spookiness out of buying a home. Find a RE/MAX agent who can help melt your fears.

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