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Top Home Buying Myths & Facts

Real Estate Agent Answering Home Buyers QuestionsThe best way to buy a home is to partner with a trusted real estate agent. Your buyer’s agent will be working in your best interest every step of the way. Their commission is typically paid by the seller. You don’t save any money by not working with a buyer’s agent. But you can definitely lose a lot of money in both the short term and the long term by making uneducated or uninformed decisions in the real estate market. 

Your buyer’s agent will also answer all of your questions and debunk common myths. Here are some of the top home buying myths & facts to consider when purchasing a home in Newport, Rhode Island. 

MYTH: You need 20% for the down payment. 

FACT: While there are advantages to making a 20% down payment (lower monthly payments, smaller loan amount, less interest paid over time) it isn’t necessary. There are loans available to veterans for 0% down, conventional loans available to first-time home buyers for 3% down, conventional loans for 5% down, and FHA loans available for 3.5%-10% down depending on your credit score. You will simply need to pay for PMI (private mortgage insurance) when paying less than 20% down. This will be added to your monthly mortgage payment. 

MYTH: A 30-year fixed rate mortgage (FRM) is the best choice. 

FACT: There are benefits to a 30-year FRM (your monthly payment will be smaller than a 15-year FRM mortgage, your monthly payment will be the same for the life of the loan unless taxes or insurance premiums increase and you can pay off your loan faster) but everyone's financial picture is different. Adjustable rate mortgages (ARM) will sometimes be the best choice for borrowers looking for low introductory rates who plan to refinance or sell in the foreseeable near future long before paying off the entire loan. A 15-year FRM might be the best choice when your finances permit, as you will likely have a lower interest rate (as shorter loans are deemed less risky by lenders). A 15-year FRM is also considered a type of forced savings, where income goes into building equity that might be spent otherwise. 

MYTH: You need great credit to qualify for a mortgage. 

FACT: Your credit score is a reflection of your financial history. It will be considered during the loan application process. 850 is considered a perfect FICO score. 740-799 is considered a very good score. 670-739 is considered a good score. 580-669 is considered a fair score. 300-579 is considered a poor score. 

You don’t need a perfect score to qualify for a mortgage. You don’t even need a good score. Most lenders require a score of 620 for a conventional loan (a fair score) and FHA loans require a FICO score of 580 (a fair score) to qualify for a loan with a 3.5% down payment. But you will pay a higher interest rate with a lower credit score. You will typically qualify for better interest rates and better terms when you are financially responsible, as reflected by a good or very good credit score. Spend wisely and pay your bills on time. 

MYTH: You won’t be able to relocate. You’ll lose a lot of money by selling too soon. 

FACT: Buyers are often told they need to stay in their homes for 5 years before selling. This is a guideline. It is only an estimate of the time needed to cover the closing costs, agent fees, and mortgage interest you have already paid so you don’t lose money when you decide to sell. Sometimes the math will work itself out in as little as two years if the value has grown considerably. When you do the math and the numbers aren’t in your favor to sell, renting your home can be a viable option. Depending on the local market it might be profitable. 

MYTH: You need a real estate agent to buy a home. 

FACT: You don’t need a real estate agent to buy a home. But we don’t recommend this to buyers or sellers. There is a lot to know. What you don’t know can cost you money: a lot of money. This is our profession. We know real estate. 

We help you find the perfect home using your preferences and criteria, navigate the home inspection process, draft formal offers, handle negotiations and work with you every step of the way. Sellers typically pay the brokerage fee to both the seller’s agent and buyer’s agent, so you won’t be saving money by not working with an agent. There is a lot of information, and it can be very costly when not handled correctly. 

We look forward to helping you with all of your home buying needs in Newport and the surrounding areas of Rhode Island. Contact Teri Degnan Real Estate & Consulting, LTD today!

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