In this post, we will review three real estate myths that are commonly held by first-time homebuyers.
It’s important to have the right information when you are buying a home. The process can be confusing and difficult enough without believing misinformation.
Myth #1 – A prequalification letter is a loan commitment
The truth: A prequalification letter is not a binding loan commitment.
If you are counting on a prequalification letter in order to guarantee a contract from a home seller, you may find yourself disappointed.
According to Brooklyn Law School professor David Reiss, “prequalification is not a binding agreement. It is one of a number of real estate myths that should be understood.” (Source: Washington Post)
It’s common for homebuyers to contact a bank or lending institution when they are about to begin their home buying process. This gives people a good idea of how much they can afford and how large of a mortgage loan they will be approved for.
When it is time to formally apply for a home loan, you will be required to provide more information to prove you qualify. Your pre-qualification is not a loan guarantee or a binding agreement from the lender.
Related: Easing The Process of Mortgages
Myth #2 – Homebuyers must put down 20 percent down payment
Truth: To buy a home, you don’t need to make a 20 percent down payment.
The twenty percent down payment on a home has been repeated for so long that it continues to be believed. It hasn’t actually been true for a while though.
It might still be a helpful guideline for future homeowners to keep in mind and save money for a future down payment, but there are many alternatives to the 20% down payment.
One reason that the 20% figure still exists is that it is usually true that without a 20 percent down payment, you are usually required to purchase private mortgage insurance or government insurance, which increases your monthly housing costs.
Another reason the 20% down payment requirement isn’t true is that it only ever applied to conventional home loans. There are several other alternatives that can have a low or no down payment including VA loans, USDA loans and FHA loans.
Although the 20 percent down payment may not always apply, keep in mind that not doing so may require purchasing insurance and a higher interest rate, both of which will add costs to your home.
New Developments on VA Home Loan Requirements
Myth #3 – Closing takes 30 days
Truth: The average closing time is 45-50 days.
It used to be true that closing on a home could be completed in 30 days, but the current rules for real estate transactions have changed this.
Fewer closing then every are completed in 30 days than ever. Your closing time can vary based on the type of loan your receive (VA loan, FHA loan, etc) but it’s unlikely the time between contract and closing (escrow) will be 30 days.
If you have found this article helpful and are looking for help in the home buying process in Glen Ellyn, DuPage County or Chicagoland call Call 630-858-0090
Related: Credit Score Changes Help Consumers and Worry Lenders
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The Law Offices of Lora Fausett P.C. provides real estate law services including buying and selling, short sales, mortgage foreclosure defense and more.
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A prequalification letter is not a binding loan commitment – Washington Post
Prequalification versus loan commitment and other real estate myths – Chicago Tribune
You Don’t Need A 20% Downpayment To Buy A Home – The Mortgage Reports
Is It Smart To Buy A Home With Less Than 20% Down Payment? – Forbes
Alternatives to Putting 20 Percent Down on a Home – US News and World Report
How Long Does It Really Take to Close on a House? – Realtor.com
Closing Times Lengthen Again – Realtor Magazine