Myth #1: I need an excellent credit score to get a mortgage.
Your credit score is a number between 300 and 850 that lenders use to determine risk (that is, how likely you are to pay them back). This number determines whether a lender will let you borrow money, as well as the amount, terms, and flexibility of the loan.
A credit score of at least 620 to 640 is generally required for traditional mortgages. The same is currently true for government-insured mortgage programs, like FHA, VA, and Rural Development—but that credit score requirement was lower pre-COVID-19 and may go back down in the future.
Find your credit score by requesting a free copy of your credit report from each of the three major credit reporting agencies at AnnualCreditReport.com.
Myth #2: I need to have 20 percent saved for a down payment.
Many people think you need to have a down payment of 20% when homebuying when, in fact, 5% is a typical down payment for many first-time buyers. Putting less down can let you save for other priorities like building your emergency fund or paying off debt. Keep in mind that the more you put down up front, the lower your monthly payment could be—and it can also help you avoid private mortgage insurance (PMI).
Myth #3: I won’t qualify for a down-payment assistance program.
There are down-payment assistance programs offered by state and local housing authorities, which can help cover down payments, closing costs, and other fees. While most of these programs are for first-time buyers, don’t count yourself out if you’ve ever owned a home. These programs typically define a first-time buyer as someone who hasn’t owned a home in the past 3 years. Talk to a loan officer in your area who can provide a sense of which program might be best suited for you.
Myth #4: I only need to budget for my down payment and monthly mortgage payments.
Calculators are a great way to gauge how much home you may be able to afford, but they don’t always paint the full picture of costs involved with buying and owning a home. In addition to your down payment, monthly payments, taxes, and insurance, you’ll need to budget for closing fees and other costs that come with homeownership. Think utilities, possible HOA fees, repairs, and regular maintenance. You also might want to include moving costs and new furniture as a line item in your budget. Your mortgage lender can help you estimate these costs based on your situation.
Approach homebuying with confidence.
Talk with an expert about your situation, and figure out a plan that makes sense for you.
