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When you’re looking to buy a home many different questions arise. Often we turn to our trusty friend, Google, for the answers to life’s various questions. But in the case of homeownership information, what you find on the internet might not always be the advice that will help you make the right decision. There are a few reasons why this is true. First of all, much of the mortgage advice available on the internet is very general which means it may not apply to your individual situation. Furthermore, there is a great deal of misinformation about homeownership that needs to be examined or debunked.
You Need a 20% Down Payment To Buy A Home
Many people have heard this rule. Sadly, it discourages them from even looking into their homeownership options. A recent study by the real estate website, Freddie Mac, found that one-third of prospective homebuyers think that they need a 20% downpayment in order to even consider buying a home. The reality is, the average down payment for a first time homebuyer according to the National Association of REALTORS, is actually closer to 7%.
So, if you don’t have that 20% down payment ready to go, don’t let that discourage you from further exploring your options. Homeownership may be well within your reach. In order to determine which down payment option is best for you, compile all of your relevant financial information such as: your income, savings, property taxes in your state, home renovation and maintenance costs, insurance costs, and closing costs. Use this information in order to formulate a budget. This will give you a more reasonable picture of what homeownership options are available to you.
A 30 Year Fixed Mortgage Is Always The Best Deal
Many articles allege that a 30 year fixed mortgage is always your best bet. Let’s start by defining a 30 year fixed mortgage. As the name suggests, this type of mortgage will be paid off in 30 years should the mortgage holder make all of their payments as scheduled. In addition, because it is a fixed mortgage, the interest rates and the payments stay the same for the duration of the repayment period. This type of mortgage is popular because it allows home buyers to plan and budget with more confidence. Additionally, because the mortgage is spread over 30 years it makes the monthly payments lower, allowing you to qualify for a more expensive home.
This all sounds great, right? Sure, but this doesn’t mean that there aren’t also downsides to this type of mortgage. Firstly, the long repayment period often means that you will be charged a higher interest rate. It is likely that you will pay more interest overall on a 30-year mortgage than you would on, for example, a 15-year mortgage. In addition, the ability to qualify for more house tempts many buyers into over-borrowing which creates financial strain for years to come. Remember, just because you qualify for a mortgage doesn’t mean you should take it.
The Rule of 28/36
This rule helps prospective home buyers determine the amount of debt they should be taking on. Specifically, the rule states that you should spend a maximum of 28% of your gross total income on housing expenses and no more than 36% of your gross income on total household debts. It is commonly used by lenders to assess the eligibility of candidates for mortgages. But, while this rule might qualify you for a mortgage that doesn’t mean you should take it. There are many other components you need to factor into your budget to make sure you are taking on a mortgage you can comfortably afford to pay off on time.
Finding Reliable Information
With these common homeownership myths debunked, you might be feeling a little lost. Hard and fast rules are definitely comforting but they’re not always valuable or helpful for your individual situation. Remember, one size mortgage advice does not fit all. This is where an AI-powered mortgage advisor can help. With Home Lending Pal’s AI-powered mortgage advisor, Kev, you can input your individual financial information to receive a mortgage score that paints a more vivid picture of what homeownership options are available to you and what budget strain each option will have on your personal finances. This is the type of mortgage advice you can count on.
Our individualized, no-pressure approach lets you move forward with more confidence and a clear picture of each of your options. For more information on what Home Lending Pal can do for you, please visit our FAQ page or take a look at our Mortgage Blog.