The fact is, buying a home today is absolutely, totally different from buying one in 2003. And right there is why so many myths swirl around a process that, in many ways, is utterly novel from what it has been. What was true isn't anymore.
Be ready to be shocked as we bust some myths below.
Myth 1: You need a 20% down payment even to think about buying a home, and that means maybe a couple hundred thousand in cash for a would be Manhattan apartment hunter.
Totally false. "A down payment can be very low," said Joe Parsons, senior loan officer with PFS Funding, a mortgage banker in Dublin, Calif. "There are conventional loans requiring just 3% for a down payment or even zero - the VA home loan program for veterans will cover 100% of the purchase price."
Maybe five years ago, in the belly of the beast of the mortgage meltdown, 20% was in fact a necessity, but today most lenders are way more flexible. And if yours isn't, go elsewhere.
Myth 2: Only those with golden credit need apply for home mortgages.
Rubbish. The past half dozen years have been rough. High unemployment, a housing implosion, you know the realities. So do lenders, and an upshot is a heightened willingness to overlook past peccadilloes such as a foreclosure.
"Credit dings and blemishes, even a bankruptcy, short sale or foreclosure do not prevent you from getting a loan, even with a very low down payment such as 3.5% for an FHA loan," said Bruce Ailion, a realtor with RE/MAX in Georgia.
A new FHA initiative called "Back to Work" explicitly cuts the time to qualify for a new mortgage after a foreclosure, bankruptcy or similar to as little as one year for borrowers who can prove their past financial difficulties were due to extenuating circumstances out of their control.
Myth 3: Fixed rate mortgages are the only way to go.
Not true, said David Reiss, a professor at Brooklyn Law School who specializes in real estate. He elaborated: "The necessity of getting a 30-year fixed rate mortgage is one of the biggest myths about home buying. The average American household stays in their home for about seven years. Typically, 30-year fixed rate mortgages have higher interest rates than adjustable rate mortgages (ARMs). Homebuyers should take a hard look at their plans for the new home."
Only 6.5% of applications for mortgages in a recent period were for ARMs, according to the Mortgage Bankers Association. A typical ARM went out at 3.21% interest, versus 4.69% for a typical 30 year fixed rate. That adds up to a difference worth tens of thousands of dollars over, say, a seven year probable life of the loan.
Do the math.
Myth 4: Cut out the realtor, represent yourself and you will save a fast 3%.
That is just about never true.
The realtor's commission - 5 or 6 % in most of the country - is paid by the seller. In most contracts that realtor agrees to "co-broke," which means he or she will split his commission with a buyer's agent.
Explained Sam DeBord, a broker with Coldwell Banker Danforth in Washington State: "Most listing agents sign a contract with the seller for a certain commission percentage - for example, 6%. They offer to share a portion of that if a cooperating buyer's agent enters the picture - for example, 3% - but if there is no buyer's agent involved, the full 6% is still paid by the seller to the listing agent."
The buyer has absolutely no say in this, at least in theory.
Could a tenacious and persuasive buyer negotiate a 1% cut in the selling price by self-representing? Probably, but saving the full 3% just isn't going to happen, said multiple sources.
Home buying makes sense. Contact a licensed mortgage professional at Wallick & Volk to review your situation for home financing that will fit your needs and get a recommendation for a qualified Realtor to help you find a home.