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Are Your Buyers in the Know?

Michelle McCann
By Michelle McCann
COMMUNICATIONS SPECIALIST

Buying a home may cost less than renting in the long run, you needn’t put 20 percent down, your credit can be less than perfect, your income is likely to increase over time, and one noted economist says that now is a good time to buy.

The thought of buying a home can be daunting for first-time buyers. But before your clients rule out homeownership, make sure they have the facts! Take a look at these five home-buying myths we’ve debunked.

It costs less money to rent than to buy.
Renting a home will almost never be less expensive than owning a home in the long run. CNN Money reports that, with a 5 percent annual increase in rent, buying is better even in the short term if you plan to own the home for at least two years. A fixed-rate mortgage can help you avoid those unexpected annual rent increases. Also, when it comes to the tax breaks of renting versus buying a home, buying is the winner because homeowners are able to deduct their mortgage interest and property tax payments from their taxable income. The bottom line is that buying a home may cost you less in the long run, and each monthly payment will increase your equity.

You need to put down at least 20 percent.
You’ve heard it before, and you’ll hear it again: you should save at least 20 percent of the home’s purchase price before you dive into the housing market. But that is no longer your only option! As a result of alternative mortgage programs, it is possible to become a homeowner with less money upfront. According to bankrate.com, for most borrowers, the Federal Housing Administration requires only 3.5 percent of the purchase price of the home as a down payment. The National Association of REALTORS® reports that the average down payment for first-time home buyers is only 6 percent, and 81 percent of Americans purchase their first home with less than 20 percent down.

You need to have perfect credit.
A good credit score, usually 700 or higher, can make it easier to get a loan with a lower interest rate; however, lenders consider other factors when deciding whether to approve a borrower for a loan. So, if you have lessthan- sparkling credit, don’t give up! There are several mortgage assistance programs to help buyers who have imperfect credit or challenging financial situations.

I don’t make enough money to buy.
You might be surprised to learn that, even if your annual salary isn’t where you want it to be, owning your own home is still an attainable goal. Lenders cannot offer a mortgage they don’t think you can repay, based on your income-to-debt ratio. Keeping your total debt—that is, car payments, credit cards bills, and the like—under 35 percent of your income is ideal when you are considering taking on a new mortgage. Themortgagereports.com states that, with a $50,000 annual income ($4,167 per month) and with a 5 percent down payment and 4.0 percent interest rate, you could probably buy a home for a maximum price of around $200,000. Also, unless you refinance or move, your mortgage payment will stay the same through the years while your income will likely increase with promotions and raises.

Now is not the right time to buy.
If you are ready to buy a home, then now is the right time to buy. Competitive interest rates and a wide range of home loan programs are available for all types of buyers. Don’t let the fears that prices are too high or that you missed your golden opportunity to purchase at a lower price stop you from buying now. Home prices have been on the rise for the past seven years, and there is no market drop in sight. Regarding when to buy a home, Economist and former Chapman University President Jim Doti says, “The sooner the better. Get it while interest rates are low. If you can afford a home, now is a good time to buy.”