Getting a mortgage can be a difficult process, especially if you’ve never done it before. To make matters worse, there’s a lot of incorrect and outdated information out there to contend with. Each myth may seem true but it’s far from that.
To that end, let’s set the record straight. Below are some common mortgage myths. We debunk the myths with known facts about down payment.
MYTH 1: YOU HAVE TO HAVE 20 PERCENT DOWN.
There was a time when putting 20% down was the gold standard when buying a home. However, those days have come and gone. In today’s market, most loans require less than 16% down. In fact, most SACCO loans only require as little as 3.5% down.
Beyond that, there are many down payment assistance programs that can help you come up with the cash, especially if you are a first-time homebuyer. You’ll need to talk to your lender to see what programs are available for you.
MYTH 2: YOU SHOULDN’T PUT MORE THAN 20% DOWN
Maybe you have been quite the eager saver and you could put more than 20% down on your house purchase. Odds are that well-intentioned friend or family member will advise you to only put below 20% down and no more.
A higher down payment has its advantages including acquiring a lower interest rate. Plus, the more you pay upfront, the less you’re borrowing—which means lower mortgage payments. Compare your options to see if it makes more sense to pay the extra down.
MYTH 5: THE DOWN PAYMENT IS YOUR ONLY UPFRONT COST
While the down payment is a huge upfront expense to buying a home, it isn’t the only one that you need to take into account. There are also closing costs to consider. These fees account for all the charges necessary to facilitate the transaction. They usually add up to 1% – 2% of the sale price.
Closing costs are typically split between the buyer and the seller. However, if you don’t have the necessary funds to pull that off, you do have the option of asking the seller to cover closing costs for you. In that case, though they would pay the fees upfront, your portion will likely be rolled into your mortgage to be paid overtime.