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Busting first-time homebuyer myths

(BPT) – When buying a first home, most people are making one of the biggest purchases of their lives. Without home buying experience, it’s hard to separate fact from fiction.

“Buying a first home can be exciting and stressful for most young buyers, especially the financing process,” says Clete Thompson, vice president at imortgage, a division of loanDepot LLC. “There’s a lot of paperwork, many choices, and sometimes budgets don’t stretch very far. Our licensed loan officers specialize in helping first-time buyers navigate the home finance process, which can be stressful if you’re not working with a seasoned professional.”

To help first-time buyers, the experts at imortgage are uncovering prevalent myths about financing a home purchase:

Myth: It takes a 20 percent down payment to buy a home.

Reality: Required down payment amounts vary by type of loan and they are on average much smaller than people think. Last year, the median down payment for all first-time buyers was 6 percent, according to the National Association of Realtors. One reason is that many first-time buyers use FHA loans, which require down payments as low as 3 to 3.5 percent. VA loans require nothing down for qualified veterans or active military personnel. If you want to take out a conventional loan, many lenders do require 20 percent down, but you can lower that percentage with private mortgage insurance. There are also hundreds of down payment assistance programs that eliminate or reduce down payment requirements for qualified borrowers.

Myth: If you owe a lot of student loan debt, there is no way you can get a mortgage.

Reality: Don’t assume that having a lot of student loan debt automatically disqualifies you from getting a mortgage. The key factor is not necessarily the size of your loan obligation, but the amount of your total monthly debt payments compared to your monthly income. This is called DTI. imortgage, for example, has approved thousands of loans to first-time buyers whose monthly student loan payments were as high as $300, and many more could qualify by increasing their monthly income.

Myth: If your credit score is low, you should not even try to get a mortgage.

Reality: Millions of potential buyers assume they will not be approved for a mortgage even though many could qualify, according to a national survey commissioned by loanDepot LLC. Today, median FICO scores for mortgages to buy a home are 683 for FHA loans and 754 for conventional loans. But hundreds of thousands of buyers with scores lower than those are getting mortgages if they have good income and low levels of debt.

Myth: Buying a home isn’t a good investment.

Reality: Real estate, like other assets, rises and falls based on supply and demand. Over the past two years, home values in most markets have been rising. While all real estate is local, if you bought a home in March 2012, by August 2014 the national median home price as measured by Case-Shiller had risen 29.6 percent.

Myth: The mortgage-interest tax deduction is going away.

Reality: Though the deduction has its critics, most observers believe it is unlikely that Congress will eliminate the mortgage interest deduction any time soon. Many states also allow homeowners to write off the interest they pay on their mortgages from their state income taxes. Check with your accountant or CPA on if you can qualify for this type of tax deduction.

Myth: I’m about to get married and the wedding is so expensive I won’t be able to buy a home.

Reality: According to TheKnot, the average wedding has 138 guests who typically give a gift valued at $100 each. That’s $13,800 in spatulas, baking pans and other things. If every guest contributed to a Down Payment Fund, you could have enough saved for a down payment on a $276,000 home in San Diego.

“These are just a few of the myths about home buying that surface frequently in our conversations with first-time buyers,” says Thompson. “I always advise potential buyers, especially first- time buyers, to get in touch with one of our local imortgage loan officers if they’re interested in straight answers to specific questions about financing a home. We are here to help.”