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Top 3 First Time Home Buying Mistakes

05/06/2010
There's a lot to know about buying a home, especially if it's your first time. The many mortgage options and confusing mortgage terminology frequently turn a happy time into a stressful, overwhelming experience. Adding to the mix is misinformation.
This article clears up three of the most common misconceptions that keep many first time home buyers from beginning the home buying process.

1. Purchasing a new home is unaffordable.
Your income is definitely something a mortgage lender considers when deciding whether or not to approve a loan. However, how much you earn isn't as important as living within your means. Lenders want assurance that you can afford the monthly mortgage payments. By focusing your search on homes priced within your budget, your mortgage application will have a better chance of approval.

In terms of renting versus buying, both have advantages. Homeownership enables you to deduct from your annual taxes the amount paid towards property tax and insurance, which helps offset the added costs of owning. Plus when you own, you build equity as the value of your property increases. Renting is oftentimes less expensive and more convenient than homeownership. However, the landlord reaps the financial benefits.

2. Purchasing a new home requires a large down payment.
A 20% down payment used to be the standard for obtaining mortgage loan approval. But times have changed, and so have mortgage options. One option is a low down payment FHA home loan geared towards first-time homebuyers. Since the implementation of several policy changes, the minimum FICO credit score needed to qualify for the FHA's lowest down payment plan of 3.5% is now 580. Different mortgage lenders may have other mortgage options suitable for first-time buyers. Taking time to
investigate the options is time well-invested.

3. Purchasing a new home requires really good credit.
It's true that better credit scores translate into more options for first-time homebuyers. These buyers likely will be offered more favorable terms such as lower interest rates and lower down payment requirements. But homebuyers with less-than-perfect credit scores still have options. If your credit scores aren't the best, always shop around and compare the advantages, disadvantages and costs of different mortgage options and lenders.

But that's not all. You should carefully review all three of your credit reports and correct every inaccuracy and reporting error you find. This process takes time, but can result in an improved credit score that qualifies you for better mortgage terms.

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