Dear Olivia,
I have rented a home for quite a few years, but I dream of owning my own home. I’m a little worried about transitioning from renting to buying, though. What do I need to know about this process ahead of time?
Sincerely,
Making a Move
Some folks stay in a rental situation because they mistakenly believe becoming a homeowner will be financially burdensome or that they simply won’t qualify for a loan in the first place.
But as many renter-to-homeowners discover, sometimes, that transition from renting to owning is much smoother than you might think.
It’s important to educate yourself about this process, so let’s go over a few myths about becoming a homeowner that might be holding you back.
You Do NOT Need Perfect Credit
Ask a new homebuyer what they think their credit score needs to be to get a home loan, and it’s often far higher than what it actually needs to be.
For many lenders and loan programs, a 660 credit score is the magic number. Even if your credit score is below that threshold, there are still many financing options available.
For example, FHA loans have a lower credit requirement than many conventional loans. FHA loans also have lower income requirements, so if you’re worried that you don’t make enough money, an FHA loan might be the ticket for you.
Yet another benefit of FHA loans is that there is a lower down payment requirement. If you’re a veteran, a VA loan has no down payment requirement!
So, the moral of the story is that there are plenty of options out there to work around credit and income issues. You just have to be willing to look (or find a Realtor to help you sort through your options).
Buying a Home Doesn’t Have to Be a Financial Burden
Photo by Jp Valery on Unsplash
Buying a home is a big financial decision. But it’s incorrect to assume that it will be more expensive than paying rent each month.
But in some cases, you can buy a home and pay a smaller monthly mortgage payment than what you might be paying in rent (what we call a #PerfectStorm). Depending on the price point of the home, your mortgage payment might only be $600 or $700 per month. In fact, one of our clients’ mortgage payment is just $515 per month for a two bed, one bath single-family home.
So, if your rent is $800 a month, you could very well buy a home and pay less than that. Granted, you have to factor in things like utilities, but many rentals require tenants to pay utilities anyway.
You do need to be aware of the associated costs of buying a home, like closing costs. But in some cases you can get financing for closing costs and wrap that into your monthly mortgage payment.
Again, the point is that there are workarounds available that make buying a home much less of a financial burden than you might think.
No, You Don’t Need to Put 20 Percent Down
Another myth that keeps people from buying a home is the notion that you have to put twenty percent down. This just simply is not the case.
As noted earlier, VA loans have no down payment requirement. And there are many other loan programs that have a zero or a low down payment option.
The reason why a 20 percent down payment is suggested is because it helps you avoid Private Mortgage Insurance, or PMI. Having PMI adds an additional cost to your monthly mortgage payment. The amount of PMI depends on the size of the loan.
The good news is that PMI is not permanent. Once you’ve paid down the loan enough to have 20 percent equity (or the home’s value has increased enough to get you there) you can refinance and get rid of PMI.
Get Guidance from a Realtor
Buying a home is a huge undertaking, and it can be a very confusing process even for people that have bought homes in the past. The best thing you can do is to find a Realtor to work with you and help you make sense of all the financial aspects of becoming a homeowner.
If you have questions about buying a home, don’t hesitate to reach out by calling me at 307-856-3999 or visiting my office at 309 N Broadway Avenue in Riverton.
~Olivia