The most common homebuying myths can delay first-time shoppers from beginning the process. In the short and long run, these myths can cost you time and money—you could even miss out on the home of your dreams. When considering whether you’re ready to purchase a home, keep in mind the following homebuying myths and get to know the truth behind each.
Myth #1: Homebuyers Need a Down Payment of at Least 20%
This first myth is maybe one of the most pervasive of the bunch. Buying a home can be expensive! And putting down 20% of a home’s value is out of reach for a lot of people.
Per the Federal Reserve System’s 2019 Survey of Consumer Finances (SCF), the median savings account balance for American families is only $5,300, which would fall well short of 20% for most homes. Likewise, a recent Bankrate survey found that less than half of all Americans had enough in savings to cover a surprise $1,000 expense.
The Truth: 20% Down Payments Are Nice to Have but Not Essential
The fact of the matter is that while putting down at least 20% on a home is great and certainly something that buyers should strive for, it isn’t required to buy a home. NerdWallet regularly compiles a list of the best lenders for no- and low-down payment mortgages, including Quicken Loans, PNC Bank, SunTrust, and more.
This approach is actually becoming more popular. In 2019, 56% of homebuyers put down less than 20% on their homes. One benefit? Lower down payments make it easier for more people to afford new homes and furnish these homes with furniture, decorations, and more once they’ve moved in.
With that said, in general, the more a buyer pays up front, the lower their monthly payment and the less likely they’ll be required to purchase private mortgage insurance, which protects the lender in the event a borrower cannot make payments on their home. However, Rocket Mortgage points out that in many cases, borrowers can request to cancel PMI once they’ve reached 20% equity in their home on a conventional loan.
Myth #2: You Only Need to Budget for a Down Payment
With all the talk about down payments, one might think that this was the only cost associated with buying a home. In truth, this is far from the case.
The Truth: Costs Associated with Buying a Home Include Down Payments as Well as Closing Costs, Interest Payments, and More
Many first-time buyers get so hung up on reaching their down payment goal that they end up not budgeting for the additional costs associated with a home purchase. This can include anything from closing costs (the fees you pay to professionals involved in the transaction), PMI, homeowner association (HOA) fees, mortgage insurance, and more.
Another consideration? Furnishing your home. In plenty of cases, relocating from a rented apartment means you’re bringing furniture along with you. However, some properties may not come equipped with all the necessary appliances that make modern life a little bit easier. These costs can quickly add up, which means it’s important for buyers to budget accordingly.
Myth #3: Your Credit Score Needs to be Great to Qualify for a Home Loan
Another common myth that holds back many potential homebuyers is the belief that their credit score prevents them from being approved for a mortgage.
The Truth: Your Credit Score Doesn’t Necessarily Need to be Great to Buy a Home
Credit scores range from 300 to 850. Generally speaking, people with higher scores are more likely to get lower interest rates on home loans. And in some cases, a person with a very low credit score may not qualify for a mortgage.
Yet according to Rocket Mortgage, conventional home loans recommend borrowers have a credit score of at least 620. To qualify for an FHA loan, individuals must have a minimum credit score of 580 with a 3.5% down payment. For credit scores between 500 and 579, the FHA requires a down payment of at least 10%.
The good news? People can take several steps to boost their credit scores. Per Nerdwallet, some of the best ways to raise your credit score quickly include paying off credit cards strategically, asking for credit limit increases, paying credit cards on time, disputing errors, and plenty more.
Myth #4: Virtual Homebuying Tools Aren’t Reliable
Buyers have traditionally purchased homes in person, namely because up until very recently, it wasn’t possible to tour a home unless you were actually present.
The Truth: Virtual Tools Can Be Essential Resources When Purchasing a Home
Recent improvements in technology—and the increasing availability and usability of that technology—have made virtual homebuying tools an essential resource in the purchasing process. These can include everything from 3D home tours and digital floorplans to FaceTime calls with onsite sales professionals.
Whether relocating for work, family, or to get a fresh start, virtual resources are especially helpful for people who move to new cities or states—which, combined, accounted for more than half of all moves in 2020. Actually purchasing homes online is expanding as well.
According to research conducted by real estate brokerage firm Redfin and reported by The Washington Post, 63% of homebuyers in 2020 made offers on properties without ever stepping foot on site. This represents a 41% increase from 2019—and is certainly a trend worth watching in the future.
Want to learn more about the homebuying process? Check out our comprehensive beginner’s tutorial to get started.