Updated: Jan 22
Misconceptions are everywhere, even around real estate and the whole home buying process. And if you’re a renter finally ready to make the jump to a homeowner, it’s high time to set the record straight and clear up some of the most common homebuying myths that are the cause of MAJOR buyer trip-ups!
First-time homebuyer or not, we all need to know the skinny truth behind some of the worst misconceptions about home buying, so we can move forward with the most significant financial decision we’ll ever make the RIGHT way!
A tricky myth, if we’re being honest. “Cheaper” always has something to do with where you live. In some cities, home prices are higher than renting a place, but in others– which include smaller towns– your mortgage, taxes, and insurance might actually be less than what you’d pay in rent.
Also, having a mortgage means the money you spend every month goes toward something you’re working to own– a nice thought to ponder.
While there’s nothing wrong with wanting to get a feel of a neighborhood and looking for a house to buy before applying for a loan, even if you’re just browsing, you’ll risk setting your heart on something, only to have it broken.
Yes, browsing is always fun, but when it comes to serious home-buying work, you need to make sure your credit is in top-notch shape before you officially start. Also, don’t forget to get pre-approved for a mortgage before you embark on your home-buying journey.
Most homebuyers think that the longer you agree to invest in your home, the cheaper mortgage payments will be– but that’s where they’re wrong.
A 30-year mortgage is a popular choice for homebuyers for a valid reason: Monthly payments for a 30-year fixed-rate mortgage are lower than its 15-year counterpart. However, you could end up paying more during the life of the loan if you pick the 30-year option instead of the 15-year mortgage because you’re borrowing the same amount of money for twice as long—at a higher interest rate.
The 30-year mortgage isn’t for everyone. It’s best to keep an open mind toward other loan plans, including an adjustable-rate mortgage.
Sure, putting in a 20% downpayment towards your prospective home is ideal if you want to avoid that pesky private mortgage insurance. However, it’s good to note that many lenders will be glad to offer up home loans with 10% or 5% down—as long as you’re willing to foot the monthly bill for PMI.
You can also skip the conventional loan and head to the Federal Housing Administration for a government-backed loan with only 3.5% down– if you qualify.
Keep yourself updated with downpayment assistance. Remember that there are lots of ways you can qualify for help on the local or federal level.
You don’t need a spotless credit to be a homeowner– no, you don’t. Keep in mind that lenders look at several factors — like your income, property type, assets, and debt levels — aside from your credit score when deciding if you qualify for a mortgage.
However, if you’re looking to get a conventional loan, it will require a good credit score. Nevertheless, if you’re aiming for an FHA loan, you’ll only need a 3.5% down payment, and borrowers with low credit scores—even under 600—can qualify.
This statement is wrong on several levels. What a house actually sells for is based on what buyers are willing to pay for it. And with so many buyers in the market now, especially in this season, it’s common for bidding wars to take prices above the listing price.
And even if you don’t get outbid, there are other costs to consider in addition to the listing price, like closing costs, homeowner’s insurance, taxes, etc. There are also the ongoing costs of homeownership like increased utilities, HOA dues, and repairs.
Ah, the most common tall tale in real estate. While you may want to believe it, especially if your housing market is hot and you’re worried your dream home could be sold in a split second, don’t! Some sellers are banking on this mistake, as it means you’ll get the home as-is, including all problems that come with it. And sometimes those problems aren’t exactly visible.
Get your money’s worth. A house is not cheap, and you should safeguard your interest and investment at all times.
Much like buying a car, the offer you make toward a listing does not need to be the asking price. If you have stellar credit, pre-approval, and down payment, sellers might be more willing to negotiate than wait for another buyer. Also, with a home inspection, issues that turn up can be used to your advantage during negotiation.
Whatever you do, don’t just settle– shop around! That’s because signing up for a mortgage with a slightly higher interest rate can cost you thousands of dollars more than what you would be paying otherwise. As a homebuyer, you’ll want to look around as each lender will offer you something slightly different.
Talk to your bank, an online mortgage lender, and a credit union to see who can offer the best mortgage for your needs.