Top 10 Myths That Trip Up First-Time Home Buyers
If you’re thinking about buying a home, you’ve probably received your share of advice from family and friends. Add to that the constant stream of TV shows, news segments, and social media posts that over-simplify the home buying process for easy entertainment.
With so much information to sift through, it can be tough to distinguish fact from fiction. That’s why we’re revealing the truth behind some of the most common home buyer myths and misconceptions.
Buying a home is a big decision, but it does not have to be a scary one. If you arm yourself with knowledge and a qualified team of support from Real Estate Professionals like Kathy Hyatt with RE/MAX, you will be well equipped to make the right choices for your family and financial future.
DON’T FALL FOR THESE COMMON HOME BUYER MYTHS
Myth #1: You need a 20% down payment.
Plenty of buyers are purchasing homes with down payments that are much less than 20% of the total cost of the property. Today, you can buy a home with as little as 3-5% down.
There are multiple programs out there that allow you to have a lower down payment, and a lender or mortgage broker can talk you through which option is the best for you. Since you are putting less money down, you’re a riskier borrower to your lender than people who put down a full 20%. Because of this, you will most likely need to pay mortgage insurance as part of your monthly payment.
Myth #2: Real Estate Agents are worth their Weight in Gold
Your Realtor® is with you every step of the way throughout your home buying journey, and he or she spends countless hours working on your behalf.1 A Buyer's Realtor® will find potential homes, communicate with sellers and their agents, and represent your interests when negotiating a home purchase. A Buyer's Realtor® is a Real Estate Professional who represents the purchaser's interests in a real estate transaction. They play a different role from the Listing Realtor®, who represents the Property's Seller.
Myth #3: Do not call a Real Estate Agent until you are ready to buy.
The earlier you bring in a Realtor® to help with the purchasing process, the better. Even if
you are in the exceedingly early stages of casually browsing Zillow, a real estate professional can be a huge help.
Realtors® can create a search for you in the Multiple Listing Service (MLS), so you get notifications for every house that meets your criteria as soon as it hits the market. The MLS is typically more up-to-date than popular home search sites like Zillow and Trulia. Setting up a search a few months before you are considering buying gives you a good idea of what is out there in your town that’s in your budget. Reviewing the MLS and speaking with a Realtor® as soon as possible can help you set realistic expectations for when you start the house hunting process.
Myth #4: Fixer-uppers are more budget friendly.
We have all watched the shows on HGTV that encourage people to go after fixer-uppers because they are more affordable and allow buyers to eventually renovate the home to include everything on their wish list. But this is not always the case.
Sometimes, homes that need a lot of work also require a lot of money. Big renovations, like add-ons, a total kitchen remodel, or installing a pool, take a lot longer than it looks on TV. If you are really interested in a fixer-upper, ask your Realtor® to show you a mix of newer homes and older homes. If you fall in love with an older home that needs a lot of work, get some quotes from contractors before you buy so you know the real cost of the renovations and see if you can work them into your budget.
Myth #5: Your only upfront cost is your down payment.
Your down payment is big, but it is not the only money you’ll spend during the home buying process. At closing, you will pay your down payment, but you’ll also bring closing costs to the table. Closing costs are typically anywhere from 2-4% of the total purchase price of the home.2 This amount includes the cost for items like homeowner’s insurance, title fees, and more.
You will also need to pay for an inspection before closing, which usually costs a few hundred
dollars. This price will be higher or lower based on the size of your new property. Your lender will also require an appraisal. An appraiser will come in and inspect the home to determine how much it’s worth. Depending on your lender, you may have to pay this when the appraisal is conducted, or it might be rolled into your closing costs.
Myth #6: You need a high credit score to buy a house.
You don’t need perfect credit to buy the perfect home. There are loans out there that buyers with lower credit scores can qualify for. These are good options for people who have had credit issues in the past, but some of them come with additional fees you will need to pay. Speak to a few local lenders or mortgage brokers to talk through which options might be best for you.
Myth #7: You can't qualify for a mortgage if you're still paying off student loans.
While some buyers may feel more comfortable paying off their existing debts before taking the leap into homeownership, it is not a requirement. When you’re applying for a mortgage, the lender takes a close look at your debt-to-income ratio.3 If you want to calculate this on your own, add up all of your monthly debt payments and divide those by your monthly income. When your lender does this, they are trying to make sure that you will be able to afford your monthly mortgage payments along with your other existing payments. If your income is high enough to allow you to make all these payments each month, having a student loan will most likely not stop you from getting a mortgage.
Myth #8: You should base your budget on what your lender approves.
How much house you qualify for and how much you can afford are two totally different numbers. When you prequalify for a mortgage, your lender will look at your income, debt, assets, credit score, and financial history to determine how much money you might qualify for.4 For some people, this number might be much higher than you thought because lenders tend to approve for the highest amount they think you can afford. But that doesn’t mean that’s how much you should borrow.
Instead, figure out how much house you can afford. An online mortgage calculator can be a good first step in determining this number. We recommend thinking about what you want your monthly payment to be as a starting point. And remember to include your principal, interest, taxes, and, insurance. You should also think about ownership expenses that are not part of your monthly payment, like HOA dues and maintenance.
Myth #9: It's all about location.
You have heard the phrase. Location, location, location is basically the real estate industry’s motto, but we will let you in on a little-known secret: It is not always true. Yes, location is great to consider when it comes to school districts and commute times, but you also need to think about how the home will function for you and/or your family’s lifestyle.
If a family of five is choosing between a one-bedroom condo in the bustling city center and a 4-bedroom home out in the suburbs, the latter is probably the best, most functional choice for them. Also, by buying in a less sought-after neighborhood, your property taxes will most likely be much lower!
Obviously, you might still want to choose an area with great resale potential, and this is something that your Realtor® can speak to you about. They are an expert in your city and are constantly monitoring buying and selling trends.
Myth #10: If you look hard enough, you'll find a home that checks every box on your wish list.
You have seen that famous house hunting show. And while we have our suspicions about how real it is, the one thing they get right is that almost every buyer needs to compromise on something. Yes, the perfect house that meets every item on your wish list is probably out there, but it’s also probably double or triple your budget.
A long wish list can be a great starting point for figuring out what you want and don’t want, but we recommend narrowing that wish list down to the top five things that are important to you in order of priority. We also recommend noting on your wish list what your absolute deal breakers are, like “must have a yard for our dog,” and noting what you can live without, like “heated bathroom floors.”
This is a great list to discuss when you first start talking to a Realtor®. A good Real Estate Agent will be able to look at your list and find properties that might work for you. By coming to that first meeting with realistic expectations and knowledge about home buying rather than a bunch of myths heard here and there, you’ll be able to start the process off on the right foot and be in your new house in no time.
KATHY IS HERE TO HELP
Whether you are a first-time buyer or a seasoned homeowner, there’s no reason to go through the home buying process without an advocate on your side.
Kathy Hyatt is here to answer your questions and do the hard work for you, so you can spend your time dreaming about your new home. Call Kathy today to schedule a free, no-obligation consultation.
Sources:
1. Realtor.com - https://www.realtor.com/advice/finance/realtor-fees-closing-costs/
2. The Balance - https://www.thebalance.com/buyer-s-closing-costs-1798422
3. Student Loan Hero - https://studentloanhero.com/featured/student-loans-buying-house/
4. Zillow - https://www.zillow.com/mortgage-learning/pre-qualification-vs-pre-approval/
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