If you’re looking for your next home, you might be wondering: to rent or to buy? That question comes loaded with real estate rumors that might make potential buyers nervous about diving in. To shine some light on what the home buying process is really like, Robert Leitzel (NMLS 1301330), mortgage loan officer at U.S. Bank helps debunk six myths to help get you ready to make the big offer.
It’s true that having a big down payment usually comes with advantages, such as no mortgage insurance and lower monthly payments, but 20 percent isn’t the default. Depending on what type of loan you choose, you can buy a home with little or even no down payment.
If you or your home buying partner is a veteran, you 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.
If you’re worried about prepayment penalties (extra charges if you pay off your mortgage before the loan term is up) as you get ready for a mortgage, don’t worry — they’re mostly a thing of the past.
Of course, you should always read your loan’s initial disclosures and all closing disclosures so you know exactly what you’re signing up for, 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, there are often additional costs that can drive up your monthly payments in the long run. Condos typically come with Home Owner Association (HOA) dues and occasional assessment payments for building improvements. Like condos, many houses and townhomes in new developments also have HOAs.
Before you put in an offer, understand how much you’ll owe for everything. Sometimes those hidden fees are hundreds of dollars per month.
Interest rates are definitely important to consider. But all lenders can offer you a range of interest rates, depending partly on how much they charge in fees. When comparing interest rates on mortgages, look at each potential 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 since you get a big-picture look at all the costs you’re up against. Plus, it can help you make sure you’re getting the best overall loan.
This myths about buying a home 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 that goes in your pocket instead of a landlord’s.
Unlike a mortgage, rent may increase over time and monthly payments don’t help you build real estate equity. On the other hand, renting means you’re insulated from potential losses in housing market downturns. Plus, you’re free to move whenever you choose depending on your lease agreement.
If your finances are stable and you think you’ll be in place for a while, 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.
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.
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, hidden costs 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 apply for a mortgage, 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.
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.
Ready for more beyond home buying myths and the realities of owning a home? Navigate the financial intricacies of home buying and mortgages with these helpful resources.