The top 5 home buyer myths busted
When it comes to buying a home, there is a lot of superstition among buyers. A lot of old wives’ tales, misinformation and downright wrong assumptions float around people’s heads when they’re preparing to buy a home. In this post, we bust five of the largest myths about home buying.
1. I need a 20% deposit before I can even consider buying a house
Not true. For some markets, a 20% deposit may run you as high as $150,000. Not many of us have that kind of cash on hand, even if we’ve been saving as hard as we can since childhood. Most lenders will lend up to 90% of your house’s value – some as high as 97%. 10% is more realistic, but there’s no hard and fast rule about having a 20% deposit.
2. Lenders won’t touch single people and the self-employed
This is another big myth. If you are single and can come up with a deposit and satisfy your lenders’ requirements, most lenders will be happy to approve your mortgage application. The same applies to small business owners. About one third of Australian private industries are small businesses. That substantial market is impossible to ignore. Usually, showing your lender or broker two years of good financial statements is a good start. Lenders are interested in what your future holds, not what your past looks like.
3. Lenders will flat out reject people with bad credit
If you’ve had bad credit and you’re afraid of even stepping foot inside a brokerage or lender’s office – don’t be. Gaining approval for a home loan with bad credit is somewhat more difficult, but not impossible. Sometimes people may have to wait a couple of years until their credit improves before applying for a home loan. Other times, people have errors or discrepancies on their credit histories that you can fix and explain. Lenders understand this, and are always eager to help.
4. I can’t buy an investment property
Untrue. Many first homebuyers are buying investment properties instead of dwellings. This could be due to lifestyle choices. Others buy to get a foothold in the property market while earning money from their purchase. If you’re buying an investment property, the choices are endless as you’re buying to make a return, not to live in it. It could make your loan smaller and your repayments more affordable.
5. Lenders Mortgage Insurance protects me against default or hardship
This is the opposite – lender’s mortgage insurance (LMI) protects your financial institution if you default, not you. First home buyers must pay LMI if they’re borrowing more than 80% of the home’s value. This is a necessity if you’re looking to buy without that mythical 20% deposit – it’s what allows many homebuyers to do so. LMI can be amortised or paid back over the life of the loan, so it need not come out of your deposit amount, which is a plus.
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