Interest rates are at historic lows and many Americans have socked away cash during the pandemic, so now may feel like a good time to take the plunge into home ownership.
In honor of National Homeownership Month, our experts looked at a few misconceptions about the buying process that can trip up home-buying rookies.
"Home buying is really a source of a lot of emotion, and it can be overwhelming for first-time home buyers to navigate," said Tanya Ball, regional manager at BOK Financial Mortgage®. "I've seen a lot of things in the industry over the last couple of months that I've never seen in 27 years in the home mortgage business, making it even more stressful."
Adding to the nervousness of first-time buyers: mortgage rates are at historic lows, while home prices have risen 8% to 15% over the last year. The number of available single-family homes is also at a 40-year low, particularly in the lower price range, which is where first timers often land.
And then there are those real estate myths that can hold back home-buying novices. Let's take care of those right now.
Myth 1: I need 15% to 20% for a down payment.
A study from the Urban Institute recently found that 39% of renters believed they needed to put down more than 20% to secure a mortgage, but that's not exactly true. In reality, first-time home buyers put down an average of 6%, according to a study from the National Association of Realtors.
"So many first-time buyers aren't moving forward with home buying because of a misconception around down payments," Ball said. "A number of years ago, lenders had fewer options to offer customers, which is where the 20% number came from. But now it is possible to get a mortgage for 0% down and still have a low monthly payment."
Myth 2: Getting pre-qualified takes a long time.
While the home-buying process can be daunting, pre-qualification before you start can help prevent headaches down the road—and it doesn't have to take a long time. The right lender can take your application and provide you with a pre-qualification letter in minutes.
"This allows you to search for a home with the confidence to make an offer and have a head start on other bidders who may not have taken the time to get pre-qualified first," Ball said.
Myth 3: My credit score isn't high enough.
Free credit score reports can give buyers an idea of where their credit risk falls, but buying a home is much different. More than 90% of top lenders use a FICO score to determine a person's credit risk (and this score can differ by as much as 100 points). FICO scores use "unique algorithms to calculate credit risk based on the information obtained in your credit reports," explained Ball.
"We have more options as lenders today when credit scores are lower, which might mean a higher interest rate," Ball said. "But that doesn't mean the dream of owning a home isn't achievable."
Myth 4: Google can tell me everything I need to know.
Online searches provide a wealth of information for home buyers when you're trying to determine the difference between an FHA or conventional loan, but when getting into nuanced questions about a specific market, broad articles and tips may fall short.
"There's so much information out there and it's not always true for the local market you're buying in," Ball said. "Home-buying is a huge decision and you're dealing with a large amount of money, so you need to be able to ask questions to get a full understanding of your situation. Online searches aren't as customizable as speaking to a local lender."
Myth 5: Renting is cheaper than buying.
Even with a low down payment, monthly mortgage payments are often lower than renting an apartment or home. Plus, instead of paying your landlord, you are creating equity in your new home and paying yourself.
Using an online calculator can help you make an informed decision on whether to rent or buy.
Lean on local expertise
"It's already an emotional experience to buy a house. Then you add in a market where there's a shortage of inventory—plus people buying over sales price—and it can pile on extra stress and emotion," Ball said.
There's been an uptick in the use of online lenders that claim a quick and easy qualification and home-buying experience, but when you're looking in a specific region, local lenders can be beneficial. Local experts know the market they serve and can take a more consultative approach when you go to buy a home.
"Having a local real estate agent and mortgage lender means you're getting people who work together, live in the same community and understand the challenges in the local market, and can help you identify the best options for you as a buyer," she said. "Online lenders don't have that personal touch."