Tackling Common Home Buying Myths

Last month, PRMI was invited to participate in Lifetime Television’s “Designing Spaces.” The episode featured some of our top Loan Originators and was dedicated to helping homebuyers with “Navigating the Home Loan Process”. During the episode, PRMI advised a young couple who was purchasing their first home. Our objective was to help them feel more empowered and knowledgeable by clearing up some common home buying myths and misconceptions.

We were honored to have this opportunity and enjoyed being a part of this important conversation. However, it also turned out to be a learning experience for us. As lenders, the ins and outs of the mortgage industry are an everyday reality. It is easy to forget that many of our consumers don’t have the same knowledge that we do and there are some things that we take for granted.

Unfortunately, the media sensationalized much of the housing market crises and, as a result, some people are hesitant to become homeowners. This has also lead to misconceptions about buying a new home and qualifying for a mortgage.

It is important for us to help our consumers separate fact from fiction. Here are a few common home buying myths that could serve as road blocks to homeownership.

You need 20% down to buy a home

As lenders, we know there are many great loan programs available. We can inform our consumers about options with lower down payments such as FHA, VA and state housing programs.

Interest rate qualification

There is a surprising amount of confusion when it comes to interest rates. Borrowers sometimes think that everyone qualifies for the lowest published rate. Lenders can help them understand the different factors that help determine the interest rate for which they will qualify and which monthly payment will fit best their budget.

Fear of judgment

I have found that some borrowers are afraid that a lender will judge them. Perhaps this is because they don’t fully understand the qualification process. We can reassure our customers by letting them know that our goal is to educate borrowers and empower them to make the best decisions.

Prequalification versus preapproval

Lenders know the difference between being pre-qualified and being pre-approved, but consumers may not. It is important to help them understand the difference.

Income determines the loan amount

Many consumers believe that their monthly or annual income will determine the amount of money that they can borrow to purchase a home. Borrowers might not know that debt load is also an important factor.

One of the most important things we can do as lenders is to help homebuyers feel empowered and confident. They need to feel in control of the home buying process and comfortable that they are making the right decisions for themselves and their future. Purchasing a home is a big decision and a mortgage lender should be a partner and a teacher.

Renting versus Buying

How does one know when it is time to stop renting and purchase your first home? There are many advantages to owning a home, but there are advantages to renting as well. In many cases, the question of renting versus buying comes down to lifestyle choice.

Renters have the freedom to move quickly and make impulsive lifestyle choices. If you aren’t sure you want to stay in the city where you currently live having the freedom to move when opportunity strikes is an advantage. Another consideration is job stability. Could you be relocated with little notice? Could you suddenly find yourself back on the job market? If so, renting makes sense.

But for many people, buying is a better choice. Although mortgage interest rates are no longer in the record lows, it is still cheaper to buy than rent in most parts of the country. For a comparison by area, visit the U.S. Department of Housing and Urban Development website.

When considering the advantages of buying a home, often the first things that come to mind are tax savings and investment. Homeowners can write-off property taxes and interest paid on a home loan. Renters have no similar tax write-off unless the rental home also serves as a place of business. Purchasing a home is also an investment in your future and a good first step toward retirement.

Additionally, buying a home brings a sense of stability that renting does not. Renters are not in control of their own housing destiny. Landlords can choose to raise the rent once a lease is up and there is little a renter can do besides agree to pay more or move. If you buy a home with a fixed mortgage rate your payment will only increase if property taxes or homeowner’s insurance increases. Landlords can also decide to sell the property with little warning or simply decide to no longer rent to you. Having to continuously move is expensive and exhausting.

Homeowners also have the ease of mind that comes with taking charge of your home environment. You can plant a garden or redesign the yard if you wish. You can paint the walls any shade that you desire and no one can dictate whether or not you can adopt a pet.

Despite the desire to own a home, the question of renting versus buying can be decided by factors outside one’s control. The tightened credit standards are challenging for young, first time buyers who have had little time to build a solid credit history and overcome credit mistakes. Entry level wages and student loan debt can also affect a first-time homebuyer’s ability to get a loan.

But, don’t be discouraged. First time homebuyers should meet with a financial planner or professional mortgage loan officer to discuss options. Approval is often easier to obtain than people think. With a little financial discipline and planning you can definitely reach your homeownership goals.

Plus, if you are secure in your job and you do not plan to move within the next five years, buying can save you money in the long run. Owning a home for five years or more is a solid investment. Just remember to prepare for additional costs beyond the monthly payments. If something breaks, there is no landlord to fix it.