It’s graduation season and now, more than ever, there is an increase in the amount of college graduates moving to metropolitan areas. Houston is near the top of the list of cities growing with these young professionals, and this age group is the main force behind the housing marketing in 2015. However, many of this new generation still believe old myths about mortgages, making the home buying process more difficult for them. The following are the six most common myths regarding mortgage lending.
- A 20% down payment is necessary.
There are many options available for new homebuyers (or even those who have already gone through this process). There is no need for a large down payment, but keep in mind, the lower the amount offered beforehand, the higher your monthly mortgage payments will be.
- It’s hard to find a lender.
Many homebuyers believe lending requirements are tough. Your financial situation does play a part in the home buying process, but be sure to speak with a reputable lender about low payment options and always remember to get a second – and third – opinion.
- Buying is always better than renting.
On average, it takes about 5-7 years to break even with the costs of buying a home in comparison to renting, so be sure the amount of time spent in a home with be at least this long.
- The 36% total debt rule.
Many lenders follow the 36% debt rule – if a potential buyer’s total debt is less than 36% of their total income, they can afford a mortgage payment. Instead of following this rule, track annual spending. Save at least this much toward a down payment to see if a mortgage payment is possible.
- There’s no rush, because the rates will stay low.
There is no one entity that controls mortgage rates. The rates change daily in response to various economic events both nationally and internationally. With the growth of the economy, mortgage rates may rise as well. Don’t be afraid to begin the buying process.
- A 30-year fixed-rate mortgage is the best choice.
The 30-year fixed-rate mortgage is the norm, but this doesn’t mean it’s the best choice for every buyer. It depends on how long a buyer plans to live in the home – sometimes this is five years or ten years. If a 30-year mortgage is agreed upon, buyers could loose money from higher interest rates.
As more young professionals move to Houston, the more potential buyers need to know truth from myth. Be sure to know the facts before agreeing to a mortgage that isn’t appropriate for your budget or too lengthy for your lifestyle and career. Lenders know buyers aren’t perfect and will help find mortgages tailored to your needs.