Buying a home is one of the biggest financial decisions you’ll ever make, but there’s a lot of misinformation out there that can make the process seem more daunting than it really is. From down payment myths to concerns about mortgage rates, it’s easy to get overwhelmed by advice that may not even be accurate. Let’s break down some of the most common home-buying myths and get to the facts.
I need a huge down payment
I hear this one a lot. It goes something like this. “I want to buy a home in the future but I don’t have the 20% to put down. I don’t know if I’ll ever be able to save up $50000-100000.”
The good news is, there are lots of programs out there for people who don’t want to put down 20%. Government backed loans like FHA allow you to put down 3.5%. To take it a step further, there are also down payment assist programs and the credit unions have zero down payment first time home buyer loans. There will still be some closing costs associated, but 100% of the purchase price will be financed.
I don’t want to buy a house, because I might move
This can be a real concern, and there is some nuance to it. If you are going to move in the next year or two, then starting your homebuying process may not be the best decision until you do get to somewhere that you are sure you’ll live for 3-5 years or more.
When you buy a house, even in the short term, it holds its value pretty well and may even gain something. Additionally, your mortgage that you are paying in place of rent, is constantly paying down the balance of your loan. This means that even if you only stay there two years and the house becomes 5% more valuable, combined with the 24 payments you’ve made, you will likely get more out of it than you paid into it. If you had rented in that same time period, none of your rent would be returned to you.
Maintenance is expensive and I can’t afford repairs
If you feel like you can afford to make the payments but wouldn’t have any left if an emergency happened, then I would recommend buying a new home or one that has been completely remodeled (by a licensed contractor who pulled permits and passed inspections). This will give you a head start on maintenance. Most things will last at least 5 years in a new home and the really expensive things like the roof and the HVAC system will typically last 15-20 years. Additionally, the builder will usually offer a warranty of 1-2 years.
Another option is to buy a townhome or condo where a lot of the repairs are done by the HOA, such as roofs, siding, and decks. Just make sure the HOA is in a good financial position.
I can’t buy a home if I have student loan debt
What the bank is going to look at is your income vs your bills (“money in” vs “money out”). The bank usually wants your total debt payments (car, student loans, etc) plus your mortgage to be roughly a third of your monthly salary (pre tax). So while your student loans may be a big total, the bank cares more about the monthly payment, so make sure to talk to a local lender who can work with you to run the numbers.
You should wait for rates to go down before buying
This one is tricky because it’s a bit counterintuitive. At face value, buying the same house for the same price at a 4% interest rate vs. a 7% will absolutely be cheaper. However, when rates go down, offers on houses go up which means you will likely end up paying more for the house even if you have lower rates.
In my opinion, it’s better to buy a house at a lower price with a slightly higher rate and less competition. You can always refinance and change your rate when the rates go down, but you can’t ever change the price you paid for the house.
For example, a $200000 house at 7% interest will get you an approximate payment somewhere in the $1500-$2000 range, whereas a $250000 at 5.5% will get you a very similar payment. You can always refinance the house you paid $200000 down to a lower rate, but if you pay more for the house with a lower rate, you’ll always have that higher payment.
You have to use the lender your REALTOR recommends
This is a great time to make sure that you understand your rights as a buyer. You have the right to use any vendor you want for any part of your process. Your agent may have closing attorneys, lenders, inspectors, and others that they trust. Generally, agents don’t get any sort of a “kickback” for using these partners and the law is very clear that if they do, they have to disclose that to you so that you can make an informed decision. Ask lots of questions to your agents. They likely use these people because they trust them and they have come through in the past for them, but you absolutely have the right to use whoever you like.
Buying a house is always a good investment
At the end of the day, your number one goal when buying a house to live in (as opposed to buying one to rent out) is that you feel comfortable with the payment and the costs associated with homeownership. There is a good chance that your home will gain value over the next 5-10 years and you’ll make some money if you decide to sell, but I would encourage that not to be your priority when considering different homes to buy as your first one.
I don’t need an agent to buy a home
While it’s true that a lot of people buying their 4th or 5th home may feel comfortable doing it themselves, I would absolutely recommend having an agent when you buy your first home. There are a lot of moving parts and things you can miss. Additionally, the agent representing the seller will at all times be acting on the seller’s behalf. Anything you say in front of them that benefits the seller (example: “If they don’t accept this, we can go $10,000 higher”) they are legally required to share with the seller as their agent. Additionally, they can’t help you in any way because doing so would be hurting their clients, the seller.
Conclusion
When it comes to buying a home, knowledge is power. Many of the common home buying myths surrounding the process can hold buyers back when, in reality, there are options and solutions for almost every situation. By working with trusted professionals and getting the right information, you can make confident, informed decisions on your path to homeownership.