10 Home-Buying Myths Debunked
Whether it's a real estate agent, a lender, or your parents, most everyone has words of wisdom when it comes to the home-buying process. But should you take their suggestions to heart? The following are 10 of the most common maxims you'll hear when buying a house, and why they aren't (always) true.
The best loan for your home purchase should be based not on a general rule but rather on three factors: credit history, savings, and spending habits. The types of mortgages available include a 15-year fixed-rate loan (which grows equity faster than a 30-year, plus you'll pay less total interest over the full term of the loan); an FHA loan, which is insured by the Federal Housing Administration and requires a smaller down payment; and adjustable-rate mortgage loans, which reset the interest rate frequently. Review the options before plunging into the standard scenario.
Depending on your qualifying loan, the down payment can be as little as 3.5 percent, the rate for an FHA loan. (Surprisingly, there are still a few lenders offering loans with no down payment). A down payment assistance program may also be an option; do a little research to learn what's available in your state, such as special programs for veterans.
Don't forget closing costs that go along with a mortgage. These expenses can include attorney fees, inspection fee, appraisal and survey fees, and even a credit report fee. The sum of the charges can range between 2 percent and 5 percent of the purchase price, according to Zillow.
Having some amount of debt actually shows financial responsibility, financial experts say, as long as it's less than about 40 percent of your monthly income and causes no harm to your credit score. Good debt may include school loans, car payments, and regularly paid-off credit cards.
This statement depends on factors including where you live and the market conditions. Additionally, buyers should consider how long they plan to be in a home -- anything less than five years may not pay off in the long run. In an expensive market like San Francisco, plan on more than five years.
Some renters get stuck in the mentality that owning is too expensive. Freddie Mac, a federally chartered agency that helps to keep the mortgage market liquid, advises looking into all the options available before giving up. For example, buyers with mortgage insurance can make a down payment of less than 20 percent. A 2014 study by Trulia found that buying is actually cheaper than renting nationally.
This approach is far from foolproof. A house in terrible shape may cost more money to fix than a home in better condition in an up-and-coming neighborhood. Research areas that are growing rapidly before jumping on the one location you always thought was the best.
The general rule, according to mortgage lenders and creditors, is that your monthly house debt can be up to 36 percent of your income. However, the best advice is to examine your personal financial situation to determine what you can afford. Track your expenses to predict whether you can truly do without 36 percent of your income on an ongoing basis.
It's easy to fall in love during the search and get hooked on the appeal of one dream house. But if this home costs more than your budget or presents issues such as difficult sellers or inspection problems, the wisest solution is to let it go. Never buy a house out of fear you won't find another one. For realistic buyers, good houses simply aren't that rare.
There's advice floating around that you can manage the process entirely on your own, thereby avoiding paying part of the agent's fee or maybe even pocketing a commission. But this is not easily accomplished. Even without an agent, you'll need an attorney to review paperwork. Also, real estate agents serve a purpose; they're experienced in a way the average homebuyer isn't when it comes to negotiations. More specifically, they can perform a comparative market analysis and set up showings, home inspections, and appraisals.