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April 28, 2014

4 Homeownership Myths That Refuse to Die

Christina Boyle
Christina Boyle, SVP Single-Family Chief Client Officer

April marks the beginning of the homebuying season, and for the first time in well over a decade, home sales – not refinancings – are expected to dominate the market. But a few stubbornly persistent myths about buying a home are likely to keep some potential buyers on the sidelines. Let's knock down those myths with the facts.

Myth #1: Owning a home is too expensive. And there's no way I can come up with a 20 percent down payment.

There's no doubt that buying and owning a home is a major expense – especially once you factor in all the ongoing costs of homeownership, like annual property taxes and maintenance needs. But coming up with a huge down payment isn't necessarily part of the equation. Depending on your credit history and other factors, a lender might ask for 20 percent down, but in general, you should expect to have to make a down payment of about 5 or 10 percent. Note that you'll usually have to buy mortgage insurance if you make a down payment of less than 20 percent.

Myth #2: There's no chance any bank is going to give me a mortgage. My credit report has a ding or two, and you know what that means these days.

It's true that qualifying for a mortgage today requires a stronger credit history than it might have in the past. Credit requirements were tightened across the housing finance industry in response to the housing crisis. This helped put buyers in a more financially comfortable position when they bought a home – ensuring they could afford what they were buying. But you don't need "perfect" credit to get a mortgage today, although the higher your credit score, the more financing options you'll have.

Want some professional advice on restoring a blemished credit record or establishing credit if you've never had it before? Check out our free CreditSmart® online training course. You can also visit a non-profit housing counseling service free of charge. The U.S. Department of Housing and Urban Development maintains a list of approved counselors in your area.

Myth #3: I don't make enough money to own a home, so I see myself as a renter for the long-term.

For millions of people, renting is the right solution – and their housing of choice. But if you dream of owning a home of your own, don’t count yourself out before exploring your options. Homeownership may very well be within your means. In fact, real estate website Trulia reported in February that when comparing owning vs. renting a same-sized house, owning is the cheaper option in all 100 of the largest metro areas (although the gap has narrowed over the past year).

With a 30-year fixed-rate mortgage, you'll have the certainty and stability of knowing what your mortgage payment will be for the next 30 years – unlike rents, which will continue to rise over the next three decades.

Myth #4: Mortgage rates are rising too fast and I've missed the window to buy a home at an affordable rate.

While mortgage rates have been rising since last spring – a trend our economists expect will continue – they're still near historic lows, with a 30-year fixed-rate mortgage averaging 4.4 percent in the first quarter of 2014. Compare that to the 1980s when the 30-year rate averaged 12.7 percent (and even spiked to a whopping 18.5 percent at one point). Even as recently as November 2008, rates topped 6 percent. So in comparison, rates today remain very affordable.

If you're interested in learning more, the links below provide a good starting point.

Resources for Homebuyers

  • Considering a Home takes you through the entire homebuying process – from making the decision of whether to rent or buy to tips on what to expect at the closing table.
  • Freddie Mac's Borrower Help Centers and Borrower Help Network assist house-hunters across the country in navigating the homebuying process.
  • HomeSteps offers a searchable database of Freddie Mac-owned homes for sale in your area.
  • CreditSmart online consumer training is available in English and Spanish.
  • The new Freddie Mac blog features homebuying news and tips.
  • Online calculators can help you gauge your readiness for homeownership and the type of mortgage that might best meet your needs.
  • Here's a glossary of financial terms you may come across during the homebuying process.
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