Common First-time Home Buying Myths

When buying a first home, most people are making one of the biggest purchases of their lives. Without home buying experience, it can be difficult to separate fact from fiction. Get the facts on these common first-time home buying myths:

Myth – It takes a 20 percent down payment to buy a home.

Reality – Required down payment amounts vary by type of loan and they are on average much smaller than people think. Last year, the median down payment for all first-time buyers was 6 percent, according to the National Association of REALTORS®. One reason is that many first-time buyers use FHA loans, which require down payments as low as 3 to 3.5 percent. VA loans require nothing down for qualified veterans or active military personnel. If you want to take out a conventional loan, many lenders do require 20 percent down, but you can lower that percentage with private mortgage insurance. There are also hundreds of down payment assistance programs that eliminate or reduce down payment requirements for qualified borrowers. Working with an experienced Mortgage Professional can help you to learn all of the programs available to you that best fit your homeownership goals.

Myth – If you owe a lot of student loan debt, there is no way you can get a mortgage.

Reality – Don't assume that having a lot of student loan debt automatically disqualifies you from getting a mortgage. The key factor is not necessarily the size of your loan obligation, but the amount of your total monthly debt payments compared to your monthly income. This is called DTI.

Myth – If your credit score is low, you should not even try to get a mortgage.

Reality – Millions of potential buyers assume they will not be approved for a mortgage even though many could qualify. Today, median FICO scores for mortgages to buy a home are 683 for FHA loans and 754 for conventional loans. But hundreds of thousands of buyers with scores lower than those are getting mortgages if they have good income and low levels of debt. It is best to discuss your current financial situation with an experienced Lender who can help you establish a plan to repair or strengthen your credit score before applying for a loan.

Myth – Buying a home isn't a good investment.

Reality – Real estate, like other assets, rises and falls based on supply and demand. Over the past two years, home values in most markets have been rising. While all real estate is local, if you bought a home in March 2012, by August 2014, the national median home price as measured by Case-Shiller had risen 29.6 percent.

Myth – The mortgage interest tax deduction is going away.

Reality – Though the deduction has its critics, most observers believe it is unlikely that Congress will eliminate the mortgage interest deduction any time soon. Many states also allow homeowners to write off the interest they pay on their mortgages from their state income taxes. Check with your accountant or CPA on if you can qualify for this type of tax deduction.

Myth – I'm about to get married and the wedding is so expensive I won't be able to buy a home.

Reality – According to TheKnot, the average wedding has 138 guests who typically give a gift valued at $100 each. That's $13,800 in spatulas, baking pans and other things. If every guest contributed to a down payment fund instead, you could have enough saved for a down payment.  The FHA Bridal Registry program allows couples to open a down payment registry account with their lender and to deposit checks into that account from anyone who wants to contribute to helping a couple become homeowners.

FHA policy permits cash gifts to be used as an acceptable source of funds for the down-payment.  This new initiative formalizes the use of cash for the down-payment by allowing couples to open up a bridal registry account where family and friends can deposit directly their gifts into that account.  Then, when the newlyweds purchase their new home, the money will be available and documented through a lender supervised account.