When planning to buy a new home, don't be intimidated by these common myths!
"The first step is to look for a house"
Before you start browsing for new homes, you have to do some homework. To know the true price you can afford, talk to a mortgage lender and get pre-approved. A lender will break down he monthly payments so that you know what you can comfortably spend. That will translate to your target purchase price.
Once you are pre-approved, you can focus your search in your price range. When you find a house you like, you are prepared to make a strong offer with your pre-approval letter. Many home sellers will nit even consider an offer that does not include a pre-approval letter.
During the mortgage approval process, the lender will explore if you have any credit issues that might affect your final approval. Should there be any issues, you have time to work with your lender to resolve them, before you are ready to purchase. The last thing you want is to find your dream home and not being able to buy it because you have not worked on cleaning up your credit.
"Winter is a bad time to buy"
Everyone talks about the busy spring market and buyers traditionally think that's the best time to buy. That is not necessarily true. For one, you have a lot more competition in early spring and summer, driving up prices. For that reason, sellers often price their homes higher in the spring than in the fall or winter, hoping they can capitalize on the increased buyer activity.
"You need 20% down payment to buy a home"
That's the typical recommendation but it's not always the best solution. Depending on the lender you work with, there are options for purchases with as little as 5% down, typically in exchange for a Private Mortgage Insurance (PMI). You may also qualify for FHA or VA loan programs (depending on the property), both of which offer up to 95% or even higher financing.
"The down payment is all you need to save for to buy a home"
While the down payment is your biggest cash investment, there are other costs associated with buying a home. Closing costs, which include title insurance fees, appraisals, home inspections, attorney fees and city transfer taxes (in Chicago) can add up to about 2.5% of he purchase price. The good news is that most of these costs can be incorporated in the mortgage, so you don't have to bring more cash to the closing.
"You need to be debt-free to purchase a home"
Being debt-free is an ideal situation when planning to purchase a home, but it's not necessarily a requirement. More important is your credit score. The higher it is, the better chance you have to qualify for a mortgage with the best possible conditions. Mortgage lenders will look at the ratio of your income that goes toward paying your fixed expenses and debts. This is called the debt-to-income ratio. They will use this ratio to determine the amount of the mortgage.
"Who needs a real estate agent these days!"
Even with much information available on the different websites like Zillow, Realtor.com and others, licensed real estate agents have access to listings that are not published or coming soon on the market.
Professional licensed agents are trained negotiators and they have knowledge of the local market values. They take an unemotional, objective view and can be a mediator in difficult negotiations, taking the heat off the two parties. They can offer solutions to problems during the life of a transaction. They are trained to look out for trouble during the transaction and they know how to save a transaction from falling apart. They offer invaluable experience and knowledge to help ensure a smooth closing, often saving their clients money and trouble.
If you are planning to buy or just need some professional advice, contact me today!
Posted by Andreas Holder on