Homeownership Myths that Most Renters Believe

The process can be intimidating for any renter who aspires to become a homeowner. There will be a dozen other minor considerations in assessing whether you’re financially and mentally prepared for the journey ahead. Among these will be a few misconceptions and myths about homeownership that could stop you in your tracks. Below, we’ve listed five of the most common ones.

Buying a home means taking on heavy debt.

Memories of the subprime mortgage crisis in 2008, and the resulting recession, left many millennials with bitter feelings about the risks of borrowing large sums of money. Taking on a mortgage can be scary, especially if you’ve never taken out a large loan. Many would argue that it’s better to continue renting rather than risk-taking on a lot of debt. But becoming a homeowner comes with many advantages you would otherwise miss out on.

So long as you have job security and are careful in what mortgage terms you accept, a conventional 20-30-year mortgage is not as intimidating as it looks. You can shave off as much as seven years from the loan length with extra bi-monthly or yearly payments. Look at it this way; You can either continue paying a monthly rent that goes entirely into your landlords’ pocket or pays a similar amount each month that builds equity in your new home.

By building equity, you are paying down your loan and creating a valuable asset for the future. You can sell that asset to pay off the rest of the loan or buy a new home when the time comes. With mortgage interest rates historically low, there’s never been a better time to mortgage.

You need at least a 20% down payment to buy a home.

While a 20% down payment is considered the sweet spot, buying a home is not a strict requirement. You can take advantage of several loan options with low down payment requirements. This ranges from Veterans Affairs loans as low as 0% to conventional and FHA loans of 3-3.5%. The main reason why most buyers assume you need a minimum of 20% is that anything less than that means having to take out private mortgage insurance (PMI). This adds a further cost to your monthly mortgage payments.

When shopping for a mortgage, buyers should take the time to choose the right program that suits their needs before buying. Fortunately, buyers can eliminate PMI once they have reached 20% equity. This is usually done by refinancing their loan, which lowers their original payment, including PMI. Numerous programs are also available in NYC to help first-time buyers transition to homeownership.

It would be best if you had a perfect credit score.

As with the common belief that you need 20% down before you can even consider buying, many buyers also believe you need a perfect credit score. A high credit score means a higher borrowing limit and a lower interest rate. Although the ranges differ depending on the scoring model, anything at or above 670 is generally considered “good” by most lenders. A better score is anything from 740 to 799, while the best scores are anything at or above 800.

However, a score of less than 670 is not the end of the road. There are several loan options available for those with a less-than-ideal credit score. One is the government-backed loan through the Federal Housing Administration (FHA). These loans also come with the advantage of low down payment requirements. Depending on your financial state, a loan officer can work with you to raise your credit score and obtain a loan more suitable for your needs.

While credit scores are an essential facet when applying for a mortgage, they’re not the only thing that loan officers consider. Every hopeful buyer should devote time to raising their credit score as high as possible. It’s also good practice for when you do become a homeowner. But don’t think that it has to be perfect.

It’s the wrong time to buy now.

A joint discussion among buyers is whether or not now is a good time to buy. No denying that choosing the right time to enter the market is essential. Ideally, you’ll want to wait until you hear “buyer’s market.” There are more sellers than buyers, which leads to competitive pricing. But don’t make the mistake of thinking that you can’t also find a good deal at other times. The fear of “buying at the wrong time” stops many people in their tracks when, if only they would look, they would see that good deals can be had at “bad times.”

The market is a fickle beast; however, we think we can predict its moves, and events can transpire the next day that throw all our forecasts by the wayside. As a buyer, you should focus on finding a home priced within your means. Understanding current market values will be important in determining what a “fair price” is, but don’t get too caught up in the technicalities of market prediction. The best you can do is have a contingency plan if market values change.

You’ll be stuck in one place and can’t move.

Being tied down to one place for years can be scary for anyone who’s never owned a home before and has always rented. It’s not an entirely misplaced fear. If you have difficulty seeing yourself staying put for the next 5-7 years, now is probably not a good time to buy. But some of these fears can be nothing more than pre-purchase jitters. Buying a home is one of the most critical decisions in a person’s life, so you shouldn’t be too surprised if you feel a little nervous about it. Make sure you assess whether you’re mentally ready for homeownership first. Don’t let this fear hold you back if the signs are all in your favor.

Besides, if something does happen later down the road, getting out of a real estate asset usually isn’t that difficult. Provided you purchased a home in a popular area with good price appreciation, you should be able to sell within a year. If you can sell for just enough to cover the remainder of your mortgage at a bare minimum, then there’s little to stop you. Ideally, you’ll want to remain in the home for enough time to build equity and sell for a profit. No matter what you hear, there’s always a way out.

Run the numbers to see if buying or renting is the right fit for you: Buy vs. Rent Calculator.