13 Home-Buying Myths to Unlearn Right Now

Home buyers today have access to a wealth of information about the home-buying process before they even begin talking to a real estate agent. Friends and family, social media — everyone has a lot to offer. While much of this guidance can be good or well-meaning, some may be outdated or inappropriate for your situation. With that in mind, here are 13 home-buying myths you should beware of and the corresponding home-buying truths you should know.

Myth #1: You need a 20% down payment.

Fact: A 20% down payment hasn’t been required to buy a home for decades, if ever.

Many home loans allow a down payment as low as 3%, as long as your loan amount is less than the so-called “conforming” loan limit for the county where the home you want to buy is located. The limit for most counties is currently $647,200. Just keep in mind you will need to pay PMI (private mortgage insurance) on a conventional loan if you put down less than 20% of the home’s purchase price. Try our mortgage calculator to view an estimated calculation of your PMI based on your loan and down payment amounts.

Here’s a quick overview of some loan types with low down payment options:

HUD/FHA loans allow a 3.5% minimum down. HUD/FHA loans are insured by the Federal Housing Administration (FHA), within the U.S. Department of Housing and Urban Development (HUD).

USDA/RD loans don’t require a down payment. USDA/RD loans are backed by the Rural Development (RD) arm of the U.S. Department of Agriculture (USDA).

VA loans also allow 0% down. VA loans, primarily for active-duty and veteran military members, are guaranteed by the U.S. Department of Veterans Affairs (VA).

Small, specialty loan programs may also permit very low down payments. One example is a HUD Homes program in Florida that allows just $100 down for qualifying buyers with FHA financing.

All mortgage loans are subject to the lender’s guidelines, requirements and restrictions. Ask your mortgage loan officer for details.

Myth #2: Your preapproval rate is the rate you’ll get when you close.

Fact: Interest rates adjust daily. The rate you’re quoted in a preapproval is based on current market conditions as well as factors like your loan amount, credit score, property type and where the home is located. In general, your actual rate can’t be “locked in” until you find a home and sign a purchase contract with the seller.

“At that time, your loan officer can explain your options and help you choose a rate,” says Wesley Black*, a senior loan officer for Zillow Home Loans in Irvine, Calif.

Your locked-in rate may be higher or lower than your preapproval rate. But be aware that locked-in rates can expire, so you should ask how long yours will last.

Myth #3: You should wait to buy a home until prices are lower.

Fact: Buying a home after a big run up in prices may seem risky, but waiting carries some big risks as well.

“There’s no guarantee prices will fall,” says Zillow Senior Economist Jeff Tucker. “If they do, it may take a long time for them to reach their bottom. Meanwhile, you need a place to live. If you’re renting, you’re facing some of the fastest growth in rents on record. When prices begin to rise again, due to low inventory and high demand, it might be hard to find the right home.”

Myth #4: Buying a home is always cheaper and a better investment than renting.

Fact: Renting a home can sometimes be cheaper than buying, and home prices don’t always go up and up in a neat, straight line.

However, a home you own is an asset that can appreciate over time. A rental may appreciate as well, but as a renter, you won’t capture that additional value; the property’s owner will.

Myth #5: You have to find a home before you apply for a home loan.

Fact: Getting prequalified for a loan before you shop for a home is not only okay, it’s also smart.

Once you’re prequalified or preapproved for a mortgage, you’ll have an idea of how much you can borrow to buy a home, you can shop for homes in your price range and you won’t fall in love with a home outside your budget. If you’re not able to get pre approved, you’ll find out what you need to do to position yourself so that you can.

Myth #6: Buying a fixer-upper will save you money.

Fact: True “fixer-uppers” need a lot more than a fresh coat of paint. These homes generally have major problems that may not be visible. Even a skilled home inspector can’t see inside walls.

“If you’re looking into a fixer-upper, you should get quotes on the repairs needed beforehand,” says Korenn Meno**, a mortgage loan officer at Zillow Home Loans in Seattle, Wash. “You’ll have to be patient, good with finances and willing to sacrifice all your spare time to work on your home or go into debt to get your home fixed up.”

You may end up with a home you love, but you probably won’t save money with this strategy. (Take our quiz to see if tackling that fixer-upper is really right for you!)

Myth #7: You have to get your loan from the lender who preapproves you.

Fact: A preapproval is a great starting point for getting a mortgage loan, but you’re not obligated to stay with that lender. You can shop around for a lender that makes a competitive offer and is a good fit for you.

Just keep in mind that it’s best practice to shop for a lender before you go under contract or lock in a rate. However, once you are under contract and have completed inspections and appraisals, it is typically not a good idea to shop around for a new lender. If you do, you will need to notify the seller’s agent of the change. Any delays or changes could put you at a higher risk of getting your offer rejected by the seller.

Myth #8: You shouldn’t buy until you can afford your ‘forever’ home.

Fact: Selling a home can be costly, but if you wait to buy until you can afford your “forever” home rather than buy a lower-cost “starter” home, you may never buy at all.

Or, you may miss out on years of equity building and price appreciation that could offset your selling costs when you trade up to your forever home.

Caveat: Considering a home you already know that you’ll outgrow in the very near future? It may make sense to wait until you find a home where you can stay at least a few years. “It’s a common rule of thumb to only buy a home you expect to spend at least five years living in, and ideally longer,” Tucker says. “It’s hard to know what the future holds, but some parts of careers and family life do have predictable changes, so if you’re considering a home that you can already foresee your household outgrowing in the near future, it probably makes more sense to shop for one better-suited to the long haul.”

Myth #9: A 30-year, fixed-rate mortgage is always the best choice.

Fact: Depending on rate movements, adjustable-rate mortgages (ARMs) can save thousands of dollars of interest over the life of the loan compared with a fixed rate. ARMs have an initial fixed rate period, and then can adjust up or down, resulting in monthly payments that can change over time.

“Finding the right loan program and term is kind of like picking an outfit,” says Black. “Everyone is going to want or need something slightly specific to fit their unique situation.”

ARMs aren’t a fit for everyone, but for many, they are worth considering.

Myth #10: You can’t buy a home if you have student loans.

Fact: Student loans can both help and hurt your chances of buying a home.

The potential help comes from boosting your credit scores, if you make your payments on time. The potential hurt comes from raising your debt-to-income ratio, or DTI, which is a factor in loan approval. Student loans are not an automatic barrier. They’re just another form of debt that’s part of your DTI calculation. Many people have student loans and a home mortgage.

Myth #11: You have to pay the seller’s asking price to buy a home.

Fact: The seller’s asking price is the amount the seller hopes you’ll pay, but it’s not necessarily the price you’ll actually pay.

This may seem obvious, but home prices are typically negotiated with offers and counter-offers until you and the seller agree on a price. Be sure to ask your agent for “comps” for a home you’re interested in — this is a report of prices of recently sold, similar homes nearby — in order to draft a competitive offer or understand whether the listing price fits in your budget.

Myth #12: You need excellent credit to buy a home.

Fact: Good home loans and attractive rates are available for people with less-than-perfect credit as well as those with excellent credit.

Who can’t qualify? People who develop a habit of always paying cash for their purchases. “Establishing positive tradelines and using credit responsibly is what we’re looking for,” says Casey Godwin***, a mortgage loan officer for Zillow Home Loans in Overland Park, Kansas.

Myth #13: Fall and winter are bad times to buy a home.

Fact: Fall and winter can be advantageous times of the year to buy a home.

Spring is sometimes called the “home-buying season” because many families prefer to move when their children are out of school for the summer. That doesn’t mean you have to buy in the spring or that you’ll pay less if you do.

Should first-time buyers avoid newly built homes?

Even before mortgage rates shot up past 5%, first-time home buyers were facing property values growing at a rapid pace amid an extreme inventory crunch.

If you’re frustrated by bidding wars driving up prices and the lack of listings that meet your wants, you’re not alone. However, shifting your house hunt toward older homes could be a way to alleviate some of the affordability challenges, according to Michael Bourque.

We recently spoke with the Kiavi CEO and former CFO of Ocwen on what makes older homes superior to new construction for first-time buyers.

Michael Bourque is the president and CEO of Kiavi, a digital lender focused on revitalizing housing stock through real estate investment. He’s worked in the lending industry since 2014 and has over 20 years experience in financial markets.

Bourque shared his thoughts on why first-time buyers should shift their focus toward older homes in a Q&A with The Mortgage Reports. Answers have been edited for brevity and clarity.

Why should first-time home buyers target older homes?

There’s a lot you can do by investing in a home built in the 70s. Just from a fundamental affordability perspective, there’s a benefit for consumers. The cost of a renovated home against the price of a new build is about $40,000 cheaper on average.

“The cost of a renovated home against the price of a new build is about $40,000 cheaper on average.”

Also, look at where the homes are. Generally speaking, new constructions tend to be much further away from city centers. Going through renovations gives folks a chance to not live 90 minutes outside of a city to have a move-in ready home.

If you have to do renovation work, wouldn’t a new build just be easier?

We’ve seen different supply chain challenges, especially in the last 18 to 24 months. New construction has obviously been impacted by all of that: everything from the increasing price of lumber to delays in getting materials coming from overseas has impacted costs and timelines.

Whereas if you think about what you might typically do in renovating a home — it could be flooring, windows, updating the kitchen, maybe a bathroom or two — you’re not using framing lumber and you’re able to have a lot more flexibility in where and how you find those materials.

What makes new builds better?

I don’t know if it’s “better” but it’s a matter of preference. You can imagine a home built when Jimmy Carter was president probably has lower ceilings, maybe even popcorn ceilings. There’s only an outlet or two in every room, not what my kids would hope to see if they walked in and couldn’t find a place to plug in their devices.

As you look at new builds today, those obviously aren’t issues. You generally have more open floor plans and they’re tuned to today’s world from an electronics perspective. That could be a trade-off.

Can investing in existing homes help boost inventory?

There’s a massive amount of aged homes in this country. Two-thirds of the housing stock is more than 30 years old. That’s $25 trillion of home value, presenting an opportunity.

I know one of the things that our customers do in renovating these homes is make them more move-in ready for today’s family. That involves updating the kitchen and sometimes the floor plan, sometimes the electrical depending on the situation. Not just creating value from an investment perspective, but generally updating that home for the next family and having a positive impact in that way too.

What advice would you give first-time home buyers in the current housing market?

It’s important to remain patient. With the run-up in home prices and certainly the change in interest rates, affordability is probably everybody’s primary concern. Ultimately, I think folks just need to be smart around what they can afford and balance that with their personal needs.

“I do think you’re starting to see homes sit on the market longer, fewer homes receive multiple offers and price decreases in some places.”

Do the research and build networks in the places where you potentially want to move to. That gives you a chance to maybe learn of things potentially coming on the market sooner. I do think you’re starting to see homes sit on the market longer, fewer homes receive multiple offers and price decreases in some places.

My sense is that the frenzy of the last 18 months is abating. I think folks come out of this period of uncertainty differently than a year ago. It’s setting up well, but again, it’s going to come back down to what they can afford.

New build vs. existing home: The bottom line

The housing market’s laundry list of affordability challenges makes it tough on home buyers. While you can’t control the rising mortgage rate environment — which may end up being good for borrowers in time — changing your search to older homes could help.

Bourque points out that you save $40,000 on average with an aged house versus a new build and they typically are located closer to city centers.

To set yourself up for success, take the necessary steps to get ready to buy and start building a network of real estate professionals where you want to live. That way, you can get insights into the market and possibly the inside track on new listings. Start by reaching out to a lender today.

Expert advice: Three common home buyer fears in 2022

Feeling nervous about buying a home?

With home prices high, mortgage rates rising, and low housing inventory, today’s homebuyers are a bit fearful — and it’s no wonder why.

“Here we are in 2022, and the market has yet again evolved to become even crazier,” said mortgage expert Shivani Peterson in a recent episode of The Mortgage Reports Podcast. “There are lots of concerns out there that I’ve been hearing, not just so far this year, but over the past couple of years. This year, though, they’re really being amplified.”

What are these fears, and are they justified? Those are just the questions Peterson sought to answer. Here’s what she had to say.Verify your home buying eligibility. Start here (Jul 17th, 2022)

Fear #1: There’s a housing bubble that’s about to pop

“The biggest concerns I hear from buyers are related to whether or not the housing market is headed toward a bubble that’s going to pop,” Peterson said. “In my opinion, we aren’t.”

While home prices are at all-time highs, Peterson says the conditions just aren’t there for a bubble — or a burst.

“The number one thing that would have to happen for this said bubble to pop would be that home prices crash,” Peterson said. “The only way that’s going to happen is if there are mass defaults like we saw in 2008 during the Great Recession.”

Fortunately, a wave of defaults isn’t in the cards for a number of reasons.

First, mortgage loan quality is much higher than it was during the early 2000s. In the pre-recession years, mortgage lenders were much less strict about who they’d loan to. This meant when times got tough and borrowers lost their jobs, they no longer had the funds to cover their mortgages and, unfortunately, defaulted on their loans, losing their homes in the process

“The biggest concerns I hear from buyers are related to whether or not the housing market is headed toward a bubble that’s going to pop. In my opinion, we aren’t.”

“To get a mortgage these days, as compared to 2008, you have to prove that you can actually repay that debt,” Peterson said. “As lenders, we put you through the wringer to make sure that, even in the worst of times, you’ll be able to afford that payment.”

On top of this, homeowners are now sitting on huge amounts of equity. At the end of 2021, the average homeowner had a whopping $185,000 in tappable equity, according to Black Knight. This equity protects borrowers in case of job losses or other financial struggles — and also if home values depreciate.

As Peterson explained, “This is a stark difference from 2008.”

Finally, there’s supply and demand to think about. Even though rising mortgage rates are pushing some buyers out of the market, demand from Millennials — many of whom are just now reaching prime homebuying age — is far outweighing supply.

“That’s a huge demographic of buyers flooding into the market,” Peterson said. “We’ve been under-building since the great recession, so there’s just not enough homes to meet the demand. That’s just simple economics and math.”

Fear #2: Losing a job and being unable to pay your mortgage

After the pandemic and the financial losses it brought for many, this fear is natural.

“Many of us who are of homebuying age have lived through the Great Recession, we saw what that was like,” Peterson said. “We graduated into a job market that was non-existent; it was really hard to even find a job after finishing college. And then we go through a pandemic, which again, turned everything upside down, so I think a lot of people are hesitant to purchase a home, especially when prices are high.”

Again, stricter lending practices help here. Unlike in the early aughts, mortgage lenders aren’t loaning money to just anyone these days. They’re looking at assets, employment, income, savings, and much, much more to ensure you can repay your debt — even if things get tough.

On top of this, a home can actually be quite a smart safeguard, particularly during times of inflation like we’re currently experiencing.

“Look at purchasing a home as your safety plan because it combats inflation,” Peterson said. “You never know what your rent is going to go up to when the lease ends. When you purchase a home and take out a [fixed-rate] 30-year mortgage, you’ve set your housing expense for the next 30 years. You know what to expect and what you’ll need to pay to keep a roof over your head.”

Your home can also offer protection if you lose your job or see your income cut back.

“Odds are your home would come to your rescue in that situation because of that homeowner equity,” Peterson said. “So, if you’re sitting on a good amount of equity in that house, and things really did hit absolute a worst-case scenario — you lost your job, you had no other investments or passive income streams, no way to make that payment — you could sell your house and most likely for a profit.”

Fear No. #3: You may have to live somewhere you don’t like

With home prices high, particularly in big cities and the surrounding suburbs, many buyers are being forced to buy outside their ideal neighborhoods. As Peterson put it, “If you’re currently renting, and you like where you live, you like the neighborhood, and your rent is comfortable, why would you ever buy?”

For one, buying offers protection from future rent hikes. When inflation rises, landlords are forced to increase rents to keep up with costs. This means you’ll likely see housing costs increase from year to year for as long as you choose to rent.

“You’d be building equity, and you can use that equity down the line to move up… It’s going to be much harder to get to that point just by renting and saving money each month.”

“You don’t know how much your rent could go up — that’s up to your landlord,” Peterson said.
“It’s not a fixed expense. You’re at risk every time your lease ends of having it renew at a higher amount.”

Buying, on the other hand, allows you to lock in a consistent monthly payment for years, despite where inflation is trending.

It also gives you a chance to build wealth and buy in your ideal neighborhood faster and more efficiently.

As Peterson explained, “You’d be building equity, and you can use that equity down the line to move up. So maybe two or three years from now, you can buy in the neighborhood you like and live where you want to be. It’s going to be much harder to get to that point just by renting and saving money each month.”

Don’t try to time the market

At the end of the day, it’s important not to pay too much attention to market conditions but instead to your own financial picture and goals.

“It’s not necessarily about timing the market,” Peterson said. “It’s about being ready for the opportunity. So address your fears and concerns, so that you can make a less emotional and more logical, financially sound decision about whether or not now is the time for you to buy.”

If you think you might be ready to buy a home, but you’re unsure about the logistics, connect with a mortgage advisor who can talk you through your options and help you get started on the right foot.

The 9 best mortgage lenders for first time home buyers

Mortgage Reports chose the nine best mortgage lenders for first-time home buyers in 2022.

These lenders were picked for their strong customer service scores and exceptionally good deals for first-time buyers — from low rates and fees to cash grants that help cover down payments.

Compare options to see if one of these lenders is right for you.

	Avg. Customer Review Score (out of 5)¹	Best Feature(s)²
Bank of America	4.6	Home buyer grants and unique loan options
Chase	4.6	Home buyer grants and unique loan options
CMG Financial	5.0	Great customer service, unique loan options
CrossCountry Mortgage	4.9	Low interest rates, unique loan options
Movement Mortgage	5.0	Great customer service, great online experience
New American Funding	4.9	Low interest rates, flexible loan terms
Prosperity Home Mortgage	5.0	Low interest rates, great customer service
Supreme Lending	4.9	Unique loan programs
Veterans United	4.8	Great for veterans, service members

Following are our picks for the best mortgage lenders for first-time home buyers. Note that these are not ranked by quality, but rather in alphabetical order.

That’s because every first-time home buyer has unique needs — and different lenders will appeal to different borrowers depending on their situation.

So read up on the best lenders below, and choose a few that sound appealing. Then be sure to get quotes from at least 3 of your front runners and compare interest rates and fees.

Finding the lowest interest rate will lower your monthly mortgage payments and save you money in the long run. It could even boost your home buying budget. So don’t skip this step! Comparison shopping for a mortgage is one of the most important things you can do as a first-time home buyer.Find your best mortgage rate (Jun 29th, 2022)

1. Bank of America — Home buyer grants and unique loan options

Bank of America’s website has a whole webpage that caters to first-time buyers. This includes a First Time Homebuyer Online Edu-Series™, which provides a suite of videos designed to take the mystery out of buying your first home.

Better yet, BofA has a Down Payment Center that lets you find down payment assistance programs operating where you want to buy. It also offers its own cash help to eligible borrowers in certain states:

America’s Home Grant — Offers up to $7,500 in closing cost help as a grant that never has to be repaid
Down Payment Grant program – Again, this is a grant that doesn’t have to be repaid. But this offers up to 3% of the purchase price toward your down payment, capped at $10,000

Although Bank of America didn’t take top marks in our survey of online customer reviews, it is highly regarded. Indeed, it took the second place spot in J.D. Power’s 2020 U.S. Mortgage Satisfaction Study. And that’s a serious achievement.

2. Chase — Home buyer grants and unique loan options

Almost half of U.S. households have at least one account with Chase. So we’re looking at a serious player in financial services. And, with Bank of America, it tied for second place in J.D. Power’s customer satisfaction study. This is a first-class lender by any standard.

Chase doesn’t seem to have the same focus on first-time buyers as Bank of America. But there are some helpful articles on its website. And its easy digital interface means you can navigate your way through the application process online if you want.

Of course, if you live near a Chase branch or are happy to work with people over the phone, those are options as well. As a major nationwide bank, Chase is more accessible in-person than some of the other lenders on this list.

Chase has a couple of Housing Assistance Programs that can give you cash grants to help with your down payment and closing costs. These are available only in certain states and to eligible buyers, so you’ll want to connect with a Chase loan officer for details.

3. CMG Financial — Great customer service, unique loan options

CMG Financial may not be the household name that the first two on our list are. But many prefer dealing with smaller, more personal lenders.

And CMG has a focus on first-time buyers. Its website has a great resource center that includes a 21-page First-Time Home Buyers Guide. This will provide plenty of information to get you going.

CMG can also hook you up with a specialized first-time home buyer programs called HomeFundIt. That is an online crowdfunding platform. And it lets you raise funds toward your down payment through social media.

Another CMG innovation is the All In One Loan. This gives you one account for your mortgage and checking. So, when you make a deposit, your mortgage balance falls. And, when you make a payment, your mortgage balance rises again. What’s the point? Well, your mortgage interest is calculated on your current mortgage balance daily. So, during the period between your making a deposit and paying for something, you’ll pay less interest.

Alongside a couple of others, CMG scored a perfect 5.0 in our survey of online customer reviews. So this is a company that is doing a whole lot right.

4. CrossCountry Mortgage — Low interest rates, unique loan options

Younger home buyers often want to do everything online. But plenty would welcome a human touch when it comes to buying their first home. And CrossCountry encourages borrowers to build strong relationships with its loan officers.

If you like the idea of a friendly, knowledgeable, easily accessible guide through the loan process, this lender might suit you.

CrossCountry scored a near-perfect 4.9 in online customer reviews. So plenty of people like the personal touch. And that can only be helped by its fast service: CrossCountry says it closes most loans within 21 days.

But one of CrossCountry’s strongest points is its low average mortgage rates, based on 2020 official data. Only one lender on our list had lower mortgage rates.

Of course, rates vary a lot by customer. But if you want to save on your home loan, it’s worth getting a quote to see what CrossCountry can offer you.

5. Movement Mortgage — Great customer service, great online experience

Movement Mortgage gives away its profits. No, really! It’s wholly owned by the nonprofit Movement Foundation. So using this lender could add your bit to the $60 million it says it’s already donated to schools and communities around the world.

As importantly, your charitable instincts won’t cost you in terms of service. Because Movement received a perfect 5.0 in our survey of online customer reviews. And it reckons it can close many loans in a week using its highly developed digital technologies.

Movement tries to help borrowers with challenging finances. And you might still be approved, even if your existing debt-to-income ratio (DTI) is quite high. Of course, people with less-than-perfect finances tend to pay higher mortgage rates.

Another benefit is that Movement offers a wide range of loan products — including low-down-payment loans, new construction loans, USDA rural home loans, and FHA 203k rehab loans. So this lender may be an option if you’re looking outside the ‘traditional’ conforming loan box.

6. New American Funding — Low interest rates, flexible loan terms

New American Funding (NAF) is another lender that’s immediately likeable. In 2019, it won a Better Business Bureau Torch Award for Ethics.

NAF has a webpage dedicated to first-time buyers. And it makes a feature of down payment assistance programs. So you shouldn’t have too much trouble using grant or loan money toward a mortgage with this company.

You can also choose how to engage with NAF. You might opt for an all-online experience. Or work with your loan advisor over the phone. Or have face-to-face encounters in one of NAF’s 186 branches in 32 states. This company is licensed to operate in every state except Hawaii.

New American Funding says it views each application on its merits. And it’s prepared to look at nontraditional credit information if your score falls a little short.

Of course, that may explain why its average mortgage rates were only around the middle of our list. But you may be offered a lower interest rate if you have good credit and a decent down payment. You’ll need to apply to find out.

Finally, NAF did exceptionally well in our survey of online customer reviews, with a near-perfect score of 4.9 out of 5.

7. Prosperity Home Mortgage — Low interest rates, great customer service

Prosperity Home Mortgage (PHM) has a special program, called Home Advantage, that might appeal to many first-time buyers. If you want an FHA loan, you might be eligible for a second mortgage of up to 5% of the purchase price to help with your down payment and closing costs.

But what’s really exciting is that the second mortgage is interest-free and requires no monthly payments. And, providing you still own and live in the home after five years, the whole amount can be forgiven. So you don’t pay back a cent.

Unless you live in Alaska, Hawaii or New York, where Home Advantage is unavailable, this could well put PHM at the top of your personal list of the best mortgage lenders for first-time home buyers.

And that needn’t come with any sacrifice in other respects. Because PHM got a perfect 5.0 in our survey of online customer reviews. And its average mortgage rates in 2020 were among the lowest on our list.

Prosperity Home Mortgage has 700 branches across the U.S. and is very proud of the expertise and experience of its mortgage consultants.

8. Supreme Lending — Unique loan programs

Supreme Lending’s customers love it. Indeed, they gave it a near-perfect 4.9 score in our survey of online customer reviews. And it has an A+ rating from the Better Business Bureau.

Supreme is certainly keen to help first-time buyers. And it mentions down payment assistance programs on its website, though these vary depending on where you live.

For example, one offer available in Dallas is the Supreme Dream program, which only works with FHA loans. This can provide 100% financing with your down payment taking the form of a second mortgage. But the entire loan can be forgiven after 36 months of on-time payments.

Check with a local Supreme Lending loan officer to see what’s available where you wish to buy a home.

Supreme has competitive rates and loan costs as well. So it may be worth getting a quote to see what you qualify for, regardless of whether you want down payment assistance.

9. Veterans United — Great for veterans, service members

Unsurprisingly, Veterans United specializes in VA loans, which are backed by the U.S. Department of Veterans Affairs.

This lender is only really an option if you’re VA-eligible. That typically includes active-duty military members, veterans, National Guard and Reserves members, and surviving spouses.

If you are eligible, Veterans United may well be for you. Because it is by far the biggest lender of VA loans. And it scores highly for customer service, both in our survey of online customer reviews and on the J.D. Power 2020 U.S. Mortgage Satisfaction Study.

Better yet, VU’s average mortgage rates in 2020 were the lowest of all nine of our picks for the best mortgage lenders for first-time buyers. Of course, some of that is down to VA loans typically having lower rates than other types of mortgages. But who cares?

However, not everyone who’s eligible for a VA loan will necessarily be able to get one from Veterans United. Because it sets its minimum credit score at 640, which is the highest score threshold on our list. Still, many who are eligible for VA loans will easily clear that hurdle.Find your best mortgage lender (Jun 29th, 2022)

First time home buyer loan programs

So those are our picks for the best mortgage lenders for first-time buyers.

But what about the mortgage itself? Along with choosing a lender, you have to choose the type of loan you’ll use to finance your home purchase.

There are countless mortgage types out there. And of course, all first-time home buyers have unique needs.

But most buyers find what they are looking for with one of these four programs: the FHA loan, Conventional loan, VA loan, or USDA loan.

FHA loans

FHA loans are partly guaranteed by the Federal Housing Administration (FHA). They’re incredibly popular with first time home buyers, offering benefits like:

Minimum down payment as low as 3.5%
Low FICO score requirement starting at 580 and up, though some lenders set their own standards
Flexible requirements for income and debt
The ability to cover your down payment with gifted or granted money

The main drawback of an FHA loan is that you’re stuck with mortgage insurance, usually for the life of the loan. But many FHA homeowners can refinance to get rid of that burden later on.

Overall, FHA loans are great for those with slightly iffy credit and/or small down payment savings. They’re generally easier to qualify for than any other loan type.

Conventional mortgages

Conventional loans are usually backed by Fannie Mae or Freddie Mac. Those within Fannie and Freddie’s box are known as “conforming mortgages,” because they conform to certain lending rules. Most U.S. mortgage loans fall into this category.

Conforming mortgages offer:

Minimum down payment of 3%
Minimum credit score of 620, though lenders get to set their own thresholds
Private mortgage insurance (PMI) that can be canceled once you have 20% home equity

There are also special conforming loan programs tailored to first-time home buyers.

For instance, Fannie Mae’s HomeReady loan and Freddie Mac’s Home Possible loan allow 3% down and come with extra benefits, such as counting rent from a roommate or renter toward your income.

USDA loans

USDA mortgages are partly backed by the U.S. Department of Agriculture (USDA). And you must buy a home in a “rural” area to qualify. But 97% of the map of America is designated as rural, so many are surprised to find themselves in luck.

A USDA loan has benefits like:

Zero down payment
Competitive mortgage rates
Much smaller mortgage insurance payments than most other loans

If you want to buy somewhere in a place that counts as rural (and that includes some smaller towns), these can provide amazing bargains.

Just note that USDA loans are only available to those with average or below-average household incomes (max. 115% of your area’s median income).

VA loans

These mortgages are backed by the Department of Veterans Affairs (VA). And, if you’re a veteran, someone with an honorable discharge, or are still serving, it’s highly likely this mortgage will suit you best. Because VA loans offer:

Zero down payment
Low mortgage rates
No continuing mortgage insurance
Easy credit threshold
Low closing costs

If you are eligible, you’d need to be in highly exceptional circumstances not to find a VA loan your best bet.

Jumbo loans

For home buyers wanting a large loan amount — typically above $647,200 — there’s something called a jumbo loan.

This mortgage program is great if your new home is in a high-priced area. Many jumbo loans allow mortgage amounts in the millions.

However, jumbo loans also have stricter underwriting requirements. Expect to need a clean credit history, a good credit score, and a down payment of at least 10-20% if you want this type of mortgage.

First time home buyer grants

Many first-time home buyers are shocked to find out that down payment assistance actually exists.

Down payment assistance (DPA) programs offer money toward your down payment and/or closing costs. Often, this money comes in the form of a grant or loan that doesn’t have to be repaid.

There are more than 2,000 down payment assistance programs nationwide, so chances are there’s at least one operating near you.

Each DPA gets to set its own benefits and eligibility criteria. But, if you’re lucky with the ones in your area, you might receive a home buying grant worth thousands of dollars.

Other DPAs offer low- or zero-interest loans. Some require you to repay those in parallel with your mortgage. But others require no payment until you move. And many forgive your loan, providing you stay in residence in the home for x years.

One important note: Your lender has to be willing to work with a DPA program for you to be able to use the funds. And there may be rules about the type of loan you can use.

Almost all the best mortgage lenders for first-time buyers we’ve chosen are happy to work with DPAs. Indeed, a couple offer their own down payment and closing cost assistance programs.

So take a little time to find out what’s available where you want to buy. You can start here: Down payment assistance programs in every state for 2022.

More resources for first time buyers

Buying your first house can seem overwhelming. But it doesn’t have to be. You can find an awful lot of help and support to guide you through the process.

If you’re still in the ‘researching’ phase, here are a few of our favorite first-time home buyer tools and articles:

Once you choose a lender, you should receive plenty of guidance from your mortgage loan officer.

And, if you choose a good buyer’s agent (a real estate agent who works on your behalf but who’s typically paid by your seller), you’ll have another fountain of knowledge.

How to get started

The first step in the homebuying process is to get a mortgage preapproval.

The pre-approval process involves filling out a mortgage application and providing financial documents — including things like your recent bank statements and tax returns.

Once the lender has verified your financial information, it can pre-approve you for a home loan. You’ll have a better idea of which mortgage product you qualify for, how much you can borrow, your down payment options, and how much your upfront costs and lender fees are likely to be.

Luckily, most lenders offer online applications these days. So you can check your eligibility relatively quickly and easily.

Housing Prices Are Expected to Drop in These Cities — Is Yours One of Them?

Dawn Allcot

Fri, June 24, 2022, 10:55 AM·2 min read

Housing prices could drop by as much as 10% in many U.S. cities, per Fortune, referencing a new report from Moody’s Analytics. However, the dip won’t represent a national home price correction, according to Moody’s chief economist Mark Zandi.

Rather, per Zandi, within the next 12 months, home price growth will reach zero year-over-year. Some of the most overpriced housing markets will experience declines, he predicts.

Zandi attributes the cooling market to rapidly rising mortgage rates in an already-overvalued market. He doesn’t consider the current prices to represent a housing bubble, because the market overvaluation isn’t accompanied by speculation, he told Fortune. However, he noted that he sees some “speculation creeping in” to markets like Phoenix and Charlotte, which are overvalued by 46% and 33%, Fortune reports.

Fortune also published an interactive chart showing the most overvalued markets. Values range from -6%, meaning that home prices are lower than expected when factoring in local incomes, up to 73% in Boise, Idaho, the most overvalued city in the country.

Some of the most overvalued cities (and regions) where home prices could be expected to drop by 5% to 10% over the next 12 months, include:

Boise, ID — 73%.
Sherman-Denizon, TX — 60%.
Muskegon, MI — 59%.
Morristown, TN — 57%.
Homosassa Springs, FL — 57%.
Lake Havasu City — Kingman, AZ — 56%.
Kahului-Wailuku-Lahaina, HI — 55%.
Dalton, GA — 55%.
Flagstaff, AZ — 51%.
Pocatello, ID — 49%.
Bremerton-Silverdale-Port Orchard, WA — 48%.
Albany-Lebanon, OR — 48%.
Idaho Falls, ID — 48%.
Nashville-Davidson-Murfreesboro-Franklin, TN — 48%.
Palm Bay-Melbourne-Titusville, FL — 48%.
Clarksville, TN / KY — 48%.
Bellingham, WA — 47%.
Myrtle Beach-Conway-North Myrtle Beach, SC / NC– 47%.
Phoenix-Mesa-Chandler, AZ — 46%.
Cleveland, TN — 46%.
Asheville, NC — 46%.
Flint, MI — 46%.

贷款利率飙升，今夏房价将继续上涨，但增速有所放缓

去年在美联储宽松政策下，抵押贷款利率下行，美国购房需求旺盛；今年随着美联储开启加息周期，抵押贷款利率开始飙升，但专家表示，美国地产市场到2022年不会有太大的缓解。

随着美国通货膨胀以四十多年来最快速度上升，抵押贷款利率的上升和物价飙升，人们愿意支付的房价可能会受到压力。

《华尔街日报》报导，虽然出现全国性房价下跌的情况很少见——触发了2008—2009年金融危机的楼市崩盘是罕见例外，但会出现房价涨幅落后于通货膨胀的时候，这实际上使住房在一段时间内更容易负担。

对可负担住房的追逐可能会带来人们购买的房屋类型和购置区域的变化。例如，根据美国全国地产经纪商协会（National Association of Realtors）的数据，2月份西部地区成屋销量同比下降了8.3%，但在房价中值相比西部低近20万美元的南部地区，成屋销量增长了3%。

以下是多名专家对2022年美国房市的多方预测。

1. 高价房屋的竞争可能会减少

美国抵押贷款利率正在上升，本月，30年期固定利率抵押贷款的利率超过5%，这是自2011年以来首次，专业人士表示利率可能会继续上升。

“大多数买家的出价范围取决于他们每个月能负担多少，随着利率的增加，抵押贷款付款会增加。因此，抵押贷款利率的上升意味着购房者将不得不调整他们的预期，并开始在较低房价范围内选择。”个人理财公司Nerdwallet的房屋和抵押贷款专家霍尔顿‧刘易斯（Holden Lewis）对“市场观察”（Market Watch）说，“我们可能会看到对高价房屋的竞争减少，而对低价房屋的竞争会更多。”

2. 买家的选择有限

Realtor.com首席经济学家丹妮尔‧黑尔（Danielle Hale）对福克斯新闻表示，待售房屋的数量已经超过季节性低点，但仍然滞后。

黑尔说，我们正在进入挂牌售房“一年中最好的时间”，并且有更多卖家进入市场。尽管如此，黑尔警告说，“整体格局仍然是买家选择有限的局面。”

她补充说，待售房屋的销售速度很快。

“即使抵押贷款利率达到11年来最高点，房屋的要价和销售价格仍在继续上涨，购房者的预算正在捉襟见肘。”黑尔说。

根据黑尔的说法，目前，典型待售房屋的融资成本已经增加了大约40%，几乎是总体通货膨胀率的五倍。

3. 房贷利率上升或迫使部分买家退出市场

美国全国房地产经纪人协会首席经济学家劳伦斯‧云（Lawrence Yun）对“市场观察”表示：“由于利率上升对负担能力的打击，许多买家将被迫退出市场。”

“15%的房价上涨和现在高达5%的利率，增加了每月抵押贷款支付数额……肯定远远高于人们的收入增长和消费价格通胀。”他说。

4. 租金上涨伤害首次购房者

由于日常必需品成本的上涨，首次购房者并没有看到房屋净值和财富增长。

黑尔对福克斯新闻说，对于这些买家来说，在原本已经充满挑战的房地产市场，租金上涨使得首次买房者难以为首付存钱。

例如，3月是单间至两居室房产租金连续第八个月增长达到两位数。

根据Realtor.com的数据，美国50个最大的大都市租金中位数达到了创纪录的1,807美元。

黑尔说，现在，锁定住房成本，以防止不得不支付更高未来租金的动力正在增加。

5. 房价将继续上涨但增速有所放缓

《财富》杂志本周报导，包括CoreLogic和房地美（Fannie Mae）在内的每家有公开预测的大型房地产公司都预测，来年房价将进一步上涨。

但专业人士表示，对买家来说，好消息是房价增长在2022年可能会有所放缓。Zillow表示，年度房价增长将“在整个春季继续加速，在5月份达到22%的峰值，然后到2023年2月逐渐放缓至17.8%。”

Zillow经济学家妮可‧巴肖（Nicole Bachaud）对“市场观察”解释说：“由于足够多的买家在价格上涨和抵押贷款利率之间达到承受能力上限，因此需求回落，我们将看到今年晚些时候价格增长放缓。”

“抵押贷款利率的急剧上升正在将更多购房者赶出市场，但它似乎也阻止了一些房主出售房子。由于供需双双下滑，市场不太可能很快从卖方市场转向买方市场。”房地产经纪公司Redfin首席经济学家达里尔‧费尔韦瑟（Daryl Fairweather）在一份声明中表示。

黑尔预计，“随着销售减少和卖家增加，市场将更加平衡”，房屋签订合同的价格和速度将会放缓。

尽管如此，“部分由十年来建房不足所驱动的失衡严重程度，可能意味着房地产市场会缓慢降温。”她补充道。

根据黑尔的说法，这意味着购房者和租房者“应该准备好迅速采取行动”，包括在寻找房屋或出租地点之前有条不紊地打理财务，并对自己是否能负担得起充分了解。

6. 雇员重返办公室或影响住房选择

Realtor.com高级经济学家乔治‧拉修（George Ratiu）对“市场观察”说：“四月可能会见证消费者活动的更广泛改善，包括随着（瘟疫）大流行限制的消退，以及我们进入新常态而旅行增加。虽然公司转向办公环境并试图让员工回到办公室和拥挤的通勤中，但加薪跟不上汽油、午餐、服装和日托成本的增加，将导致员工对灵活性（工作）的需求。过去两年远程工作的成功不仅重新定义了就业文化和期望，还让美国人有机会在远离高成本市中心的地方寻找更多经济适用房。”

他也表示，一些认为自己不必亲自重返办公室的人实际上可能不得不重返工作岗位，这意味着可以看到人们从他们在瘟疫大流行高峰期购买的更多郊区房屋，搬回城市地区。

Source: Mortgage Reports

Is buying a house still worth it?

Home prices continue to climb. And interest rates have gone up as well, increasing the cost of homeownership from month to month. Unsurprisingly, many home buyers are left wondering: Is buying a house still worth it in 2022?

The short answer is yes. If you’re financially ready, buying a house is still worth it — even in the current market. Experts largely agree that buying and owning a home remains a smarter financial move than renting for many.

If you’re on the fence about a home purchase in 2022, here’s what you should consider.

In this article (Skip to…)

Benefits of buying a house in 2022

Despite the financial challenges of the current market, there are plenty of reasons why buying a home is still worth it in 2022.

1. Rising prices lead to increased equity

One of the chief benefits of owning a home is that over time, increased home equity can add to your net worth and give you a low-cost source of cash as needed. The ability to build equity is what sets homeownership apart from renting, which has no return on investment.

“Home buyers who purchase a home today are still likely to see rising property values and increased home equity. That’s because supply is still relatively low compared to buyer demand, so home prices are likely to keep rising, although at a slower pace,” notes National Association of Realtors (NAR) senior economist Gay Cororaton.

“When you couple [fixed mortgage payments] with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity”

–Jason Gelios, Realtor

Cororaton points out that, even with rising mortgage rates, home prices have held up. As of March 2022, the median sales price was up 15% year-over-year.

“Although home prices have fallen approximately 30% from their peak level in 2006, they have rebounded over the years, with the median single-family existing-home sales price rising at an annual pace of 3.4% from the fourth quarter of 2006 through the fourth quarter of 2021,” Cororaton adds.

Using this metric, if you bought a home 15 years ago, you likely would have accumulated $197,500 in home equity — $141,700 of which would be price appreciation.

“Over the past 30 years, a homeowner who purchased a typical home and sold it today would likely have built up equity of $360,700,” she continues.

2. Homeownership means fixed housing costs

What’s extra nice about buying a home with a fixed-rate mortgage is that “even though the value of your home will increase, your monthly principal and interest payment will remain the same over the life of your loan,” says Jordan Fulmer, owner of Momentum Property Solutions in Huntsville, Alabama.

Jason Gelios, a Michigan-based Realtor, points out that that owning real estate is still the top way to create generational wealth. “When you also couple this reasoning with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity.”

“There aren’t too many investments that can provide the returns that real estate can,” he says.

3. Owning gives you opportunities renting doesn’t

Of course, there are several other advantages to buying a home today. These include:

The ability to customize your home the way you see fit, unlike a rental unit that likely won’t allow for personalization
Greater privacy from neighbors, especially if you select a single-family detached home
Home equity that can be tapped via a home equity loan or home equity line of credit (HELOC). This money can be used to fund home improvement projects, pay off debt, cover the cost of a wedding or other major expense, or virtually anything you desire
The ability to claim a mortgage interest deduction on your taxes if you finance your property
The chance to build a stronger credit rating and improve your credit score if you finance a mortgage and pay your bills on time

And then there are other, less tangible benefits many homeowners experience. For instance, you’ll likely have more room to raise a family and grow your household. And you may build roots in your community and enjoy greater stability over time. Consider that renters are four times more inclined to relocate in a given year versus homeowners, per the U.S. Census.Verify your home buying eligibility. Start here (May 22nd, 2022)

Disadvantages of buying a home in 2022

Of course, buying a house isn’t going to be the right move for everyone. There will be certain downsides to homeownership in any market — particularly the current one. Here’s what experts say prospective buyers should watch out for.

“One of the biggest disadvantages is the fierce competition buyers face nowadays. It’s really a dog-eat-dog market for buyers, making it more stressful to win a bid on a home,” says Gelios. “Purchasers will need to move quickly and be aware of what they are looking for in a home.”

Additionally, it’s getting more expensive to win bidding wars, leaving many would-be homeowners owners out in the cold. You don’t want to jeopardize yourself by borrowing more money and/or paying a higher interest rate than you can afford.

Furthermore, there is no guarantee that your home will continue to increase in value at the rate residences have over recent years. The NAR anticipates home price appreciation to slow to 5% by the end of the year — a rate of appreciation in line with historical norms.

But, while property values won’t continue to skyrocket as we saw in 2020 and 2021, they should keep growing over time. And even at a slow rate of appreciation, this leads to significant equity growth, making homeownership one of the best investments available.

Is it smart to buy a home with home prices so inflated?

Naturally, some home shoppers worry that buying a home is a waste of money because home prices are inflated — and if they drop, it could mean a net financial loss for those who buy at the peak of the market.

However, The experts we’ve interviewed throughout 2022 agree that a housing crash is highly unlikely.

“I don’t believe there will be a nationwide crash. For a crash to occur, the supply and demand situation would have to flip upside down, with more inventory existing than the number of buyers,” Fulmer explains.

“However,” he continues, “I believe that many markets around the country have seen artificial inflation over the last couple of years. These markets will likely see significant corrections due to rising interest rates and other economic factors.”

“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house… In these markets, the value will likely continue to rise above what you paid for the house.”

–Jordan Fulmer, Owner of Momentum Property Solutions

Gelios agrees that we are not in a market bubble. “Unlike what we saw back in 2008, there are no current indicators of a housing market crash occurring. For example, we continue to have competitive homebuyers who are willing to pay cash above the asking price and a healthy job market with many positions being unfilled — two signs that we are in no way headed toward a crash.”

He adds, “Even with inflation increasing the prices of everything from groceries to automobiles, we won’t see the housing market go down anytime soon. The demand for homes will remain with us for a long time, especially as first-time buyers reenter the market this year to get their shot at owning a home.”

Keep in mind that most people shopping for homes today are millennials who have postponed buying a house and are eager to become first-time homeowners. As Gen Y continues to feel pressure to accommodate their partners and children, they will join in hunting for and buying homes. That means pricing pressures aren’t going anywhere.

“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house — assuming you can afford the monthly payment,” adds Fulmer. “In these markets, the value will likely continue to rise above what you paid for the house.”Verify your home buying eligibility. Start here (May 22nd, 2022)

Buying versus renting in 2022

While home prices have increased rapidly over the past two years, renting isn’t always a more affordable alternative. Rent prices have been skyrocketing in many places, too.

“We are seeing rental increases of $300 extra per month in my market. That impacts how much you can spend on your basic life necessities like groceries, gas, and utilities,” says Christian Ross, managing broker at Engel and Volkers in Atlanta. “There is also a persisting shortage of rental supply in many markets, meaning you may have an easier time finding a home for sale than a rental.”

Housing payments vs. rent payments

“I would focus more on your monthly payments than the likely prospect of home appreciation and increased equity,” he continues. “If your mortgage payment will be less than you would pay in rent for a similar house, you should probably go ahead and purchase a home.”

Suzanne Hollander, a real estate law professor at Florida International University in Miami, says it’s crucial to perform your due diligence here.

“To know if it’s more expensive to buy or rent in your market, you need to do your homework and calculate the math. Learn the sale prices of comparable properties in your area and the rental prices for leased properties. Calculate the amount of your monthly mortgage payments based on your research of the likely sale price compared against the amount of your expected monthly rental payment,” she recommends.

Mortgages are fixed, rents are not

Keep in mind that if you choose a fixed-rate mortgage loan to finance a property, your monthly principal and interest payments will stay the same throughout your loan’s term. (Though keep in mind that property taxes and homeowners insurance rates can increase over time.)

“In contrast, rental rates are not predictable,” says Hollander. “Normally, a tenant signs a one-year rental contract. And at the expiration of the contract, the rental rate will probably increase. Only five states and the District of Columbia have rent control laws in place.”

If you expect a job relocation or a move in the next few years, it may be more advantageous to rent than purchase, however. That’s partially because you’ll incur closing costs on a home purchase, which may equal 2% to 5% of your borrowed amount. It will probably take a few years to recoup those costs, which requires staying put.

Your next steps

Still undecided about buying versus renting?

“Consult with an experienced Realtor and mortgage lender, who can help you explore what options are available at your budget and shine a light on your financial situation,” advises Ross.

Also, carefully research the state of your local market.

“If there is an influx of jobs, there will probably continue to be more buyers and sellers, resulting in continued growth in home prices,” says Fulmer. “In a less robust market, it might be smarter to continue renting in anticipation of a possible market correction and lower home prices.”

The bottom line? Provided your finances are in order, your job is secure, you can afford the monthly payments, you’re working with a skilled real estate agent, and you will remain in place for at least a few years, buying a home will not be a waste of money in 2022, the pros agree.

Buying a Fixer Upper: How to Find, Afford and Improve a Fixer-Upper Home

Searching for your dream home and wondering if it’s worth buying a fixer-upper and making it your own? Here’s what you need to know.

Buying a fixer-upper involves purchasing the least desirable home on the block and overseeing its transformation. Whether you’re considering a fixer as an investment — and you plan to sell after construction is complete — or you’re fixing up a home to make it your own, there’s a lot to consider when buying a fixer-upper, from home price to construction costs to financing.

What is a fixer-upper home?

A fixer-upper is a home that needs repairs, but not so many that it’s uninhabitable or worthy of being torn down.

Fixer-uppers are usually offered for a lower price than homes in better condition, which makes them appealing to buyers looking to maximize their purchasing power or investors looking to flip the property and turn a profit.

Should I buy a fixer-upper home?

Most often, people buy fixer-upper homes because the cost of purchasing the home plus renovation costs may total less than what they’d pay for a comparable home in good condition.

Here are some of the key reasons buyers decide on buying a fixer-upper:

Reduced price

If you have your eye on a popular neighborhood, either for resale value or your own lifestyle, you may be able to get a better deal buying a fixer upper in your desired location and renovating it than purchasing an already-updated home.

Customizable improvements

When you purchase a fixer-upper, the sky’s the limit when it comes to fixtures and finishes (within your budget, of course). Renovating a fixer-upper can be ideal for buyers with very specific tastes or those who want more control over the aesthetics of their home. When buying a fixer-upper, you avoid paying for the renovations someone else completed, especially if you don’t like them.

Older home charm

The character of older homes isn’t easy to replicate. Buying an older home in need of some TLC can allow you to restore and maintain time period details, while bringing the home up to today’s efficiency, safety and comfort standards.

Make a profit

Whether you’re planning to flip or live in the home for a few years before selling, you may be able to turn a good profit based on the renovations you make. Your return on investment depends on the types of renovations you complete, the materials you use and the quality of the work. If profit is the goal, select popular home improvements in your market to increase property value and appeal to a wide variety of buyers.

Tax incentives

In some metropolitan areas, such as Philadelphia and Cincinnati, buyers who purchase a fixer-upper and renovate to improve the property value may be eligible for a tax abatement or credit.

How to find fixer-upper homes

Finding the right fixer-upper is all about where you look. Here are a few strategies for finding the right home.

Want to find fixer upper homes in your area? Narrow down your search using the Keyword section of the Zillow app.

Search online: Use Zillow to search fo r homes below market value. You can search keywords such as “fixer upper,” “needs work” or “TLC” to narrow down potential properties.

Work with an agent: A local buyer’s agent should be able to help you find fixer-upper homes in your desirable neighborhoods. Well-connected agents may even be able to show you homes that haven’t hit the market yet, via word of mouth.

Search auctions, foreclosures and short sales: Distressed properties may be in fine structural condition but are sold below market value in order to offload them quickly. It’s important to note that these homes are usually sold as-is, and disclosures might not be available, so be sure you have enough extra money in your budget to cover surprise issues.

What to look for when buying a fixer-upper home

When shopping for a fixer-upper, prioritize the things you can’t change about a home (like its location), or things that would be too costly to change (like significant structural renovations). Here are key factors to consider:

Location

Location is the most important thing to look for, because it can’t be changed. Look for a fixer-upper in a desirable or an up-and-coming neighborhood in order to maximize potential resale value. Finding the right location will also ensure that you’re happy in the home. Pay attention to things that might be important to you, like school ratings, nearby parks and restaurants and commute times.

The home’s location will also play a part in determining your renovation budget and estimating the home’s post-renovation value. The quality of finishes and upgrades you select should be in line with comparable homes in the same neighborhood if your goal is to recoup costs on resale.

Layout and size

With a fixer-upper, you might be able to change the layout as you see fit, but pay attention to any design and layout ideas that would require removing load-bearing walls. This can be a costly exercise, and sometimes it’s just not possible. Home additions to increase square footage are also expensive and might not be allowed, depending on local zoning requirements and laws.

Home condition

There’s a difference between a fixer-upper and a home with significant structural defects. Structural and mechanical problems are a lot more expensive to fix than cosmetic ones. Be sure to hire a home inspector to gain knowledge of the home’s positives and negatives — hiring a home inspector is an invaluable step, even if you’re buying a home as-is. Here’s what should be on your home inspection checklist for a fixer-upper:

Strong foundation
Up-to-code electrical
Proper plumbing
Solid roof condition (should come with roof certification)
HVAC and/or central AC
Functional windows

Straightforward cosmetic updates

Prioritize homes that have outdated or worn out finishes that don’t appeal to the general public but can be updated affordably and without too much effort. Ideally, the fixer-upper you buy will only need cosmetic upgrades. Look for homes with:

Peeling or dated paint (interior and exterior)
Older bathroom fixtures and tile
Dated kitchen cabinetry
Laminate or tile countertops
Stained carpeting
Hardwood floors in need of refinishing
Leftover belongings or trash that need to be removed
Neglected landscaping
Old or non-functioning appliances

How to buy a fixer-upper

Buying a home that needs work can be risky, because you won’t know the full condition of the home until you start tearing down walls. That’s why doing your due diligence on the property and neighborhood ahead of time is key.

Get a professional home inspection

When you put an offer on a house, be sure to include an inspection contingency. An inspection contingency allows you to back out of a deal and get your earnest money deposit back if the inspection reveals that the home has serious hidden defects.

Even homes marketed as being in “as-is condition” can be inspected — the only difference is with an as-is home, the seller is telling you that they do not want to make any repairs based on your findings.

The buyer is responsible for the cost of an inspection, which ranges between $250 and $700, depending on the size of the home and your location. In addition to a general inspection, you might also opt for specialized inspections for trouble areas. Common specialty inspections include pests, sewer lines, radon, lead-based paint and structural inspections. Costs for specialty inspections are similar to general inspections.

A structural inspection reviews the home’s structural integrity, but also lets you know of any natural hazards nearby that could impact the resale value or your own health and safety. You may also consider hiring a structural engineer to assess the property before you make an offer. It will cost between $500-$700 but could save you thousands of dollars in future foundation repairs.

Hire an architect and general contractor

An architect can create a new layout for a home, create plans and blueprints and tell you what is and isn’t possible. Some cities require you to submit architectural plans to acquire home permits, making an architect a necessity. The average cost for an architect is around $5,000, depending on the scope of your project.

Your home inspector should be able to give you a rough estimate of what it would cost to adequately repair problem areas that come up in an inspection, but since they’re not the one who will be doing the work, it’s best to get a more accurate quote from a contractor. Whatever they quote you, add a 10% contingency for any problems that come up along the way. Be sure to get quotes from a few contractors and do your due diligence in checking their licensing and customer reviews.

Budget for improvements

Working with your contractor, be sure that your budget takes into consideration all applicable costs. Don’t forget to include:

Permit fees, if applicable
Cost of materials, like flooring, paint, light fixtures, cabinetry, countertops and hardware
Cost of labor, including general contractors, plumbers, electricians and inspectors
Cost of living during renovations, if the home will be uninhabitable during the project

Know your limits

Above and beyond the financial concerns, you also need to gauge your tolerance for a major renovation project, especially if you plan to save money by doing some of the work yourself. Home renovations are not as easy as they look on TV and if it’s your first time, a lot can go wrong. Even if everything goes right, there’s a lot of hassle involved in a large-scale construction project. You’ll have to live in a construction zone or move elsewhere temporarily, while still paying all the carrying costs for the home. Finally, the project could take a lot longer than you expect due to supply-chain issues that have affected the cost and availability of many construction materials.

Financing options with fixer-upper loans

You can purchase a fixer-upper with a traditional conventional loan then pay for all the improvements out of pocket. Or, you can get a fixer-upper mortgage that’s designed to help you finance both the house itself and the renovations. Common types of home loans for fixer-uppers are:

FHA 203(k) standard

An FHA 203(k) Standard loan finances the purchase and renovation of a primary residence. Here are the key requirements:

Minimum credit score of 500 with a down payment of 10%, or a credit score of at least 580 with down payment of 3.5%
The total cost of the loan must fall under FHA mortgage limits in your area
No luxury improvements (like pools) are allowed, but structural work is allowed
Requires a HUD consultant to approve the architectural plans, oversee payments to contractors and review inspections to ensure the home meets structural integrity and energy efficiency standards
There are limits on how soon you can resell (not within 90 days)
The contractor is paid out of an escrow account managed by the lender

FHA 203(k) streamlined

This financing option has similar requirements as the FHA 203(k) Standard, but it’s meant for simpler, cosmetic renovation projects, as it has a spending limit.

Minimum credit score of 500 with a down payment of 10%, or a credit score of at least 580 with down payment of 3.5%
For cosmetic upgrades under $35,000
There are limits on how soon you can resell (not within 90 days)
The contractor is paid out of an escrow account managed by the lender

HomeStyle loan

A HomeStyle loan is a combination home loan and home improvement loan, guaranteed by Fannie Mae.

Minimum credit score of 620; minimum down payment of 3 or 5%, depending on a few factors like owner occupancy, first-time home buyer status and income
Allows for other improvements that aren’t covered under an FHA 203(k), like pools and landscaping—but note that all improvements need to be “permanently affixed to real property (either dwelling or land)”
The contractor is paid out of an escrow account managed by the lender
You must use a certified contractor

CHOICERenovation

A CHOICERenovation loan is a combination home loan and home improvement loan, guaranteed by Freddie Mac.

You can finance renovations that cost up to 75% of a home’s value
Money can be used for upgrades that prevent natural disasters
You can DIY the work and get a down payment credit
Requires multiple appraisals to ensure you’re upholding the terms of the contract and that the agreed-upon renovations make the home meet its estimated value