There are a number of myths out there among potential homebuyers. In honor of National Homeownership Month, RE/MAX’s Stephanie Visscher had several of their agents address three of these myths, citing how many first-time buyers may be closer to homeownership than they think.
The first is the misconception that a 20% down payment is required for a home purchase. In reality, many other home loan options may exist. For instance, consumers can get into a home with as little as 3% down. “77% of non-cash, first-time homebuyers in 2018 purchased a property using a down payment of less than 20%,” according to a study by the National Association of Realtors.
Work Closely with a Mortgage Professional
First time home buyers need to know how important it is to work closely with a mortgage professional because there are options out there for almost every type of homebuyer. It is, however, also incumbent on buyers to prepare and do their research. According to RE/MAX Agent Cande Green, homebuyers may be surprised how much money they can keep for emergency savings – instead of putting it toward their down payment – without significantly impacting their monthly mortgage payment.
The Time Misconception
Another misconception is that the price, closing time, and repairs are fixed. They’re not. Nearly everything in a real estate transaction is up for negotiation. “Rarely does everything line up perfectly in a listing,” says Visscher. “The price may be slightly out of reach, the home may be stunning except for the ancient carpet, or a buyer could need more time to wrap up their current living situation before they can move. That’s where negotiation comes in, and it’s one of the many benefits of working with an experienced real estate agent.” An agent can help not only with the price, but also negotiate closing costs and any repairs or updates that need to be made to the property before the sale is final.
What is the Coronavirus Clause?
A new phenomenon is agents helping their clients add what can be referred to as a “Covid Clause” or “Coronavirus Clause” to their contracts. “These addendums allow for extensions or special accommodations due to unforeseen circumstances arising from the novel coronavirus,” says Visscher. “What is included in the clause will differ based on each scenario. Many real estate associations in the U.S. and Canada provide templates for agents to refer to, but it’s important for buyers and sellers to discuss any clauses with their agent and perhaps even a legal professional of their choosing before adding to their contract.”
A less-than-20% down payment will require private mortgage insurance (PMI) to be added to the monthly payment, but it’s important to note the this often can be removed once the debt to income (“DTI”) ratio on the loan drops below 80% or as part of a refinance where the new DTI is less than 80%. The exception is with an FHA loan, where the only way to remove the PMI payment is by refinancing to a conventional loan.
Of course, every journey to homeownership is different. But experienced Realtors and mortgage consultants are available to help guide first-timers through the complex real estate process.