To rent or to buy? That question comes loaded with real estate rumors that could send potential homebuyers running for the rental hills.
To shine some light on home buying, Robert Leitzel (NMLS 1301330), mortgage loan officer at U.S. Bank, helps debunk six myths to help prep for that very important purchase.
Not necessarily. It’s true that having a big down payment usually comes with advantages, such as no mortgage insurance and lower monthly payments. But depending on what type of loan you choose, you can buy a home with little or no down payment.
Veterans have access to zero-percent-down loans through the U.S. Department of Veterans Affairs. Federal Housing Administration (FHA) have down payments as low as 3.5 percent minimum if qualified. Conventional loans are often available for just 3 percent down based on certain qualifications.
Working with a loan officer early on can help you explore the best options for your budget.
Prepayment penalties are mostly a thing of the past (since the 2010 Dodd-Frank Act). Of course, you should always read your loan’s initial disclosures and all closing disclosures to be sure. But, most mortgages originated in the last five years do not have prepayment penalties.
Condominiums and townhouses often carry a less expensive sale price and have perks. (Think: lower maintenance and little to no yard work.) However, watch out for hidden costs.
Condos typically come with Home Owner Association (HOA) dues and occasional assessment payments for building improvements. Many houses in developments also have HOAs.
Before you put in an offer, understand how much you’ll owe. Sometimes those fees are hundreds of dollars per month.
Interest rates are definitely important. But all lenders can offer you a range of interest rates, depending partly on how much they charge in fees.
If financial matters seem complex, here’s a tip: when comparing interest rates, look at each lender’s Annual Percentage Rate (APR). APR is a calculation lenders give that combines the quoted interest rate and their fees. Looking at the APR is a much better comparison than just comparing the interest rate by itself. And it can help you make sure you’re getting the best overall loan.
This myth is accompanied by its sister myth: It’s cheaper to own than to rent.
It’s true that buying costs more money per month and exposes you to variable maintenance costs and property taxes. However, it also offers you an investment in real estate equity. And best of all – no landlord.
Rent, on the other hand, may increase over time and monthly payments don’t help invest in real estate equity. But you’re insulated from potential losses in housing market downturns and you could befree to move whenever you choose depending on your lease agreement
If your life is stable and you think you’ll be in place for awhile, buying may make a lot of sense. But if your life might change in the near future, renting could be the better financial choice.
There could be a few reasons for sometimes low points in the home buying market. To start, most urban markets across the U.S. are feeling the pinch of not having enough starter homes. Additionally, younger generations are saddled with more student debt, lower paying postgraduate jobs and a reluctance to invest in real estate. While critics blame millennials for craving a lifestyle rich in avocado toast and light on investing, that’s not exactly the case.
“While millennials may not be buying homes at the pace of the baby boomer generation at the same stage of life, millennials are buying homes. It’s just that we’re still feeling the aftershocks of the Great Recession,” Leitzel says.
Three steps to take before buying a house
1. Consult professionals early.
A consultation with a loan officer is a great place to start for mortgage loan information months, or even years in advance. Loan officers can help you navigate all of the decisions that you will need to make. They often know strategies to help you realize your dream quicker than you might think.
Loan officers can help you navigate all of the decisions that you will need to make. They often know strategies to help you realize your dream quicker than you might think. They’re a knowledgeable resource for you and meeting with them is free.
Another great way to kick start this journey is with a mortgage affordability calculator. It estimates how much house you can afford. All you do is enter your annual income and monthly expenses, then it calculates the mortgage amount that fits your budget.
2. Don’t be your own broker.
Too many times people try to buy a house on their own, and it can become a nightmare. Work with a real estate agent and loan officer for the entire process.
Make sure you understand all the fees and multiple stages of the mortgage application process. They include pre-approval, loan application, processing, underwriting and closing. Professionals help you make the best deals and decisions.
If you want a fast, at-your-fingertips way to start a mortgage application, check out the U.S. Bank Loan Portal. Here, you can securely apply for a mortgage eligibility letter, submit loan documents and connect with a trusted mortgage loan officer.
3. Consider taking advantage of mortgage insurance.
Mortgage insurance is known for its bad rap, but it’s not always the enemy. The benefit to you is that it lets you put down less than 20 percent, and that might be the best-case scenario for some. This type of insurance policy protects your lender against loss if you fail to pay your mortgage. The lender may require insurance depending on the type of loan you choose and the amount of your down payment.
Some loan products are available where the lender pays the mortgage insurance for you. At times, mortgage insurance stays with the loan for the life of the loan, And sometimes it will go away when the loan is paid down to a certain percentage of the original amount.
Taking out a mortgage that has mortgage insurance isn’t always a bad decision. Consider the loan estimate you receive carefully and ask your mortgage loan officer about alternatives.
Navigate the financial side of home buying and mortgages with these helpful resources.