Welcome to our section on dispelling home buying myths of buying your first home.
As you probably know, buying a home can seem daunting and knowing what’s fact and what’s fiction makes it even more complicated. That’s why we’re here today to talk about some of the myths surrounding buying a home with an fha insured mortgage.
This page focuses on myths surrounding buying a home and obtaining a mortgage.
This knowledge base focuses on tips for buying your first home.
Six common myths we’ll tackle are:
- I should use the maximum loan amount I’ve been qualified for to purchase a home
- I know what i can afford so i don’t need a to get pre-qualified by a lender
- If you have a lot of debt, you should pay it off before being approved
- Rates are dropping so I’ll get a better rate if I wait
- A home inspection is mandatory
- Newly built homes are maintenance free
Let’s look at myth 1: I should use the maximum loan amount I’ve been qualified for to purchase a home.
Many people believe that once they get qualified for a loan they should use that maximum loan amount to purchase their home. Does this myth make sense? This myth is neither true nor false but what do we mean by that and why wouldn’t you want the most home you can qualify for?
The decision on whether or not to get a loan for the maximum amount you qualify for becomes a matter of what is best for your current financial situation and your lifestyle. You may be thinking that using the maximum loan you’ve been qualified for gets you closer to the home of your dreams and if the lender qualified you for that amount it must be okay, right? Technically, yes but let’s take a look at the loan qualification process from the lender’s perspective.
One of the qualifying factors lenders look at is your debt to income ratios. Debt to income refers to the amount of money coming in each month compared to the amount of money going out each month. You must have more coming in than going out in order to meet your obligations however, there are many expenses that are not included in the qualifying process such as car insurance, phone bills, and, of course, cable tv and internet. That said, if we were to factor those additional expenses back in, your debt to income ratios would be higher.
Now, let’s talk a little about what we mean by lifestyle. For example, your morning ritual may include a trip to Starbucks with an average bill somewhere between $8 and $10. As a renter, this expense does not hurt your budget and you enjoy meeting your friends before work. If you stopped at Starbucks each workday morning, your bill could be as much as $200 per month which the lender did not consider when qualifying you. Additionally, we all have hobbies and different kinds of entertainment that we spend money on.
What all of this means is when you take on a mortgage for the first time and you go for the maximum loan amount, make sure that your current lifestyle hobbies included will not cause a hardship in making your mortgage payments on time. You might consider taking on a lower mortgage amount so that you can pay your mortgage while maintaining your lifestyle and home purchase expenses. Additionally, there are costs associated with home buying that should be considered such as the need to buy furniture, window treatments, etc., so be sure to budget appropriately.
Myth 2 focuses on getting pre-qualified by a lender before you begin looking for a home.
Let’s say you already have an idea of what you can afford. You’ve tracked your spending, you’ve performed calculations using online calculators, and you’ve looked at home listings. You’re ready to find a home, or are you?
Let’s take a look at this myth of what getting pre-qualified means and why it’s an important step before beginning your search.
This myth is not true.
Getting pre-qualified by AAA Capital Funding is the smartest thing you can do before writing an offer.
Although you’ve done your math, and from your perspective the sales price and the new mortgage payment are within your budget, the Underwriter may have a different opinion. If you use a tool like an online mortgage calculator to help you determine what the proposed mortgage payment might be, that’s a great start however, there are other things to consider besides the mortgage payment when you qualify for a home loan. For example, do you know what your credit report is and is it accurate?
It’s not uncommon for credit reports to contain errors and or misrepresented information that can impact your ability to obtain a mortgage loan. Furthermore, if you do find misreported information, it can be difficult and time consuming to get it corrected and the lender will not close the loan until it is.
Knowing your credit score is important no matter what your situation and especially when buying a house, so contacting the three big credit bureaus Equifax, Experian, and TransUnion to find your credit score is a good first step.
Getting pre-qualified before you write an offer helps ensure that when you write an offer you can close the loan.
Did you know that the majority of realtors will not even present an offer without a pre-qualification letter from us?
That’s because the minute you make an offer that gets accepted, the house goes off the market until the transaction has closed and if you are unable to qualify for the loan, the seller has to start all over.
A lot of frustration and disappointment can be avoided if you take the time to speak to us at AAA Capital Funding before you put a deposit down on a home.
Getting pre-qualified for an affordable loan amount based on your budget also helps to ensure you don’t fall in love with the home that you cannot qualify for. In getting pre-qualified, we here at AAA Capital Funding will also be able to look at your entire financial situation, such as whether you have the mortgage reserves, funds to close, and whether you need mortgage insurance.
The best thing to do is reach out to AAA Capital Funding to find the solution that’s right for you.
Myth 3 is one we often hear about regarding paying off debt.
In order to be approved for a home loan, the myth is if you have a lot of debt you should pay it off to be approved.
Let’s look at the facts behind this myth because this is not entirely true.
Although it may seem like a good idea to pay off or pay down your debt prior to or during the loan process to increase your chances of loan approval, doing so may cause more harm than good depending on your circumstances.
If your debt to income ratios do not exceed the lender’s threshold, you would be wise to reserve your savings for the required down payment, closing costs, purchase related charges, and reserves for potential future costs rather than paying off debt.
AAA Capital Funding will inform you if we determine your debt needs to be paid off to qualify however, if you pay off debt on your own and still do not qualify for other reasons, you cannot get the money back.
Okay, so, we’ve just talked about debt to income but what does it mean and why is it important? Debt to income refers to the amount of money coming in each month compared to the amount of money going out each month. You must have more coming in than going out in order to meet your obligations.
AAA Capital Funding uses debt to income ratios as one method to determine your ability to repay the loan in a timely manner. While debt to income ratios are one of the methods to measure your ability to repay, AAA Capital Funding will look at your amount of down payment which reflects your equity in the property, amount of reserves which measures your ability to handle unexpected costs in the future, and credit history. All of which determine the amount of mortgage you qualify for.
Never pay down your debt or pay off debt just because you think it will increase your chances of loan approval before consulting with us here at AAA Capital Funding.
If you are concerned about your debt obligations, you should consult with us at AAA Capital Funding before applying for a home loan.
Always feel free to call us at 954-390-7994 or toll free 888-601-8344.
Let’s turn our attention to myth 4:
Most people looking for a home begin to pay attention to interest rates, and if rates are dropping they may think they should wait to purchase a home in order to get a better rate.
Have you ever thought about that?
Let’s look at myth 4: Rates are dropping so if I wait to purchase, I will get a better rate.
This myth is neither true nor false however, the strategy may work against you.
Because, mortgage loan interest rates are directly impacted by our ever-changing global economy. They fluctuate daily just like the stock market. In between the time you get an accepted offer to the time you actually close a loan, a lot can happen in the stock market. Yes, rates may continue to drop but beware, conversely, they may also rise.
If you’ve been pre-qualified by AAA Capital Funding at a given interest rate and have also found the home that’s right for you, it may be wise not to gamble but to move forward with the purchase. If the price is right and the payment is affordable without breaking the bank and if you’re waiting for rates to drop before you get pre-qualified and make an offer, a number of things can happen such as, someone else may submit an offer on your ideal home that gets accepted. Now, you have to start all over.
Home values may rise causing the sales price to increase and you may not qualify for a higher loan amount or, rates may begin to unexpectedly rise and even though the loan amount has not increased, you may not qualify for the loan at a higher interest rate.
AAA Capital Funding deals with fluctuating interest rates daily and we know that sometimes even a rate increase of a quarter of a point can turn an approval into a decline. For this reason, AAA Capital Funding may give you two options: first, you can float your interest rate if you think rates will be dropping which means, you’ll be given the best rate at the time of closing or, if you’re satisfied with your current interest rate and payment you can request the we lock that rate for you.
This is something you should discuss with us here at AAA Capital Funding. We will give you the information so you can decide what option is best for you and your situation. Don’t let waiting to get the best deal come between you and your first home.
The best time to buy your first home is when you’re financially ready to take on the responsibility of home ownership and the best thing you can do to ensure you’re ready is to get educated.
You should call us at 954-390-7994 or 888-601-8344 to discuss your best approach at getting started.
Many first-time homebuyers believe they don’t need a home inspection and can avoid the cost of an inspection by skipping it, so let’s take a look at myth 5: a home inspection is mandatory.
Is this myth true?
This myth is not true.
A home inspection is optional which means, you must request a home inspection if you want one.
We do not require or perform a home inspection but we do require an appraisal to be performed by a fully licensed and approved appraiser during the loan process and it is a condition of closing. So, what is a home inspection and why might it be a good idea to get one?
A home inspection gives you more detailed information about the overall condition of the home prior to purchasing it and may uncover the need for costly repairs.
Let’s look at the difference between a home inspection and an appraisal. In a home inspection, a qualified inspector takes an in-depth unbiased look at your potential new home to evaluate the home’s physical condition, the structure, construction, and mechanical systems. Inspections can also identify items that need to be repaired or replaced and estimate the remaining useful life of the major systems, equipment structure, and finishes. The purpose of the home inspection is to give you the opportunity to discover the overall condition of the property before you get too deep into the process. A true benefit of requesting a home inspection is that you may be able to make your purchase contract contingent on the results of the inspection.
For example, the listing says appliances are included in the purchase price but the home inspection determines they are not in a safe working condition. At this point, you could renegotiate your offer to include that the seller is to repair or replace the affected appliances prior to the close of the loan, or you could ask for a lower selling price or a seller credit so you can replace the appliances yourself.
An appraisal on the other hand, is required by our Underwriters and does not replace a home inspection. Similarly, a home inspection does not replace the required appraisal. The purpose of the appraisal is to estimate the value of the property for the Underwriters granting the loan.
An appraisal is required to ensure the property is marketable should the lender have to foreclose and take the property back.
AAA Capital Funding does not guarantee the value or condition of your potential new home.
In conclusion, deciding early to request and pay for a home inspection helps you be an informed buyer. Many first-time homebuyers believe that if they look for a newly built home instead of an older home they won’t have to deal with maintenance issues.
That’s what we’ll consider in myth six: Newly built homes are maintenance free.
Is this myth true?
This myth is not true.
If you’re referring to things that break, leak, or quit working altogether, there’s no such thing as a maintenance free home.
All homes; new or existing, will have ongoing maintenance requirements at one time or another over the course of home ownership, and although buying a new brand new home may reduce the need for immediate maintenance, it does not entirely eliminate maintenance concerns. Both new and resale homes have value.
Deciding to purchase a new home over a resale home to avoid immediate maintenance repairs may not turn out to be the right decision. For example, although you found a new home that fits your needs, you also found a resale home that also fits your needs but is more conveniently located. Before you make your decision based on maintenance fears, let’s dig a little deeper and talk about some basic differences between a new home and a resale home and their maintenance concerns and solutions. Let’s start with the newly built home; first, prices for newly built homes are often more expensive, which is logical considering all the building material, plumbing, and appliances are new.
It can be accurate that because the home is new it is less likely to need major repairs shortly after closing.
As a new homeowner, although it’s likely that your home won’t need immediate repair you should be aware that unexpected emergencies can and do happen, so you need to be prepared.
Now, let’s talk about a resale home. The only difference between a new home and a resale home is its age and condition. Although not new, a resale home may in fact be located in the perfect area, have all the amenities that are on your wish list, and be within your budget. If this is the case, don’t be afraid to move forward. There are steps you can take to reduce or eliminate your fears of having to replace things right after you close.
Request a home inspection to determine the condition of the plumbing, appliances, wiring, etc..
You may also be able to negotiate with the seller to replace any major items that need repair prior to closing or request a credit from the seller to make repairs. Also, you can purchase a home warranty from a reputable insurance company for a reasonable price. This type of warranty has a small deductible and covers appliances including air conditioners. This insurance will either fix or replace the broken item for for the cost of your deductible. Talk to your insurance company to see if they offer such a plan.
Don’t lock yourself into a new home thinking it will be maintenance free and don’t be afraid to purchase a resale home if it’s what you’ve been searching for.
If you see advertisements for maintenance-free living, most likely they are referring to a homeowners association that will cover things like lawn care, exterior pest control, and sprinkler systems. This means you do not have to do the work and the association does it for you but for an additional monthly fee.