You may not want to hear this, but you know those home buying “facts” your friends and family tell you? Many of them are totally untrue – they are just myths. Sticking to these myths without doing your research can be detrimental to your home purchase process. It may slow down the process or even cost you your dream home.
To help you, we’ve compiled this list of the most common home buying myths you may come across – including some that may surprise you.
What are the most common home buying myths you should ignore?
1. You need to find a house first
It is common to see first-time homebuyers look for a house first before applying for a mortgage loan. But we’re afraid to tell you that’s not the right way to go about it.
You see, competition for homes is usually high, especially in a buyer’s market. Looking for a home before applying for a mortgage may cost you your dream home because another buyer (with a pre-approval) may just swoop in to get it.
So, here’s what you should do: Stay ahead of the competition by getting a mortgage pre-approval first. This step will prove to sellers that you’re a serious buyer. It will also help you attract a good real estate agent as agents don’t like working with buyers without pre-approval. Also, getting a pre-approval helps accelerate the whole home purchase when you finally find your dream house.
2. Buying a new house before selling the existing one
If you’re a homeowner planning to move, buying your next home before selling your existing one is a bad idea. In fact, it can put you in a very difficult situation.
Want to know how?
Well, let’s say your purchase of a house is contingent on the sale of your existing home, sellers will likely reject you for an offer without such contingency.
Also, if the buyer of your home has an issue and can’t close on the sale, you could get stuck with two mortgages and feel pressured to sell quickly, even if it means dropping your price or complying with ridiculous buyer demands.
3. Location is the most important home buying factor
Often, homebuyers make do with low-quality homes because agents told them that the location advantage would complement it. But despite the numerous advantages it poses, location is not everything when it comes to buying a home.
It is important to consider comfort first. For example, if you have a large family, the need for home space can come before the location benefits.
Also, there is the financial requirement that comes along with living in a particular location. For example, taxes are often lower on homes in suburban neighborhoods than homes in the city centers.
With that said, if school selection is important to you, be sure to identify the school boundary maps for your schools of choice to ensure you don’t get stuck in the wrong place.
4. Your down payment must be 20%
Although it is safer to have a 20% down payment – especially if you want a conventional loan – it is not a strict requirement.
Many lenders offer mortgage loans with as low as a 3% down payment. Examples of such mortgage loan options include:
- VA loans: These are mortgage loans guaranteed by the United States Department of Veterans Affairs and meant for active military personnel and veterans. They require a 0% down payment.
- FHA loans: The federal housing administration loans are government-backed loans for low – medium earners with low credit scores. This loan requires a 3% down payment along with mortgage insurance.
- Conventional loan: Not all conventional loans require a 20% down payment. If you have a good credit score, stable income, and low debt rate, you can get a conventional loan with less down payment requirement.
However, you will have to pay for PMI (Private Mortgage Insurance).
5. The down payment is the only fee you are required to pay upfront
Many home buyers believe the only money they need to pay upfront in a home purchase process is the down payment. But this is just another one of the many common home buying myths out there.
Before completing the home transaction, you will have to pay other fees upfront. Some of these fees are:
- Inspection fees: You have to pay the inspection upfront. This fee will be used to ensure that the house you’re buying is defect-free.
- Appraisal fees: Your mortgage lender will need you to pay for an appraiser. This person will determine the home value and ensure that you’re not paying more than necessary for the house.
- Origination fees: Most lenders charge this fee to cover their cost of processing your loan, and it’s typically 0.5%-1% of the entire loan amount.
6. You don’t need a buyer’s agent
We hear this so much that we just had to include it in our home buying myths list.
The home purchase process is much more complicated than most homebuyers think. You have tons of paperwork to deal with, showings to attend, and much more to do.
Having a buyer’s agent guiding you through the process will make everything easier. They help you:
- Find a home that goes along with your budget.
- Draft and go through the purchase contract.
- Contact other professionals you need during the home purchase (e.g., home inspector, appraiser, etc.)
- Negotiate with the seller’s agent to get the best deal
The best part about hiring a buyer’s agent is that you don’t have to pay them. They get their pay by splitting the commission with the listing agent.
7. It is cheaper to buy a fixer-upper
Home renovation TV shows like HGTV and DIY give viewers rather shallow information about the amount of work, time, and finance it takes to renovate a home.
They make many people think it is a good idea to buy a fixer-upper and renovate it to their taste.
But the reality is that renovating a fixer-upper is more expensive and time-consuming than you see on these TV shows. Also, it may not turn out as great as you think despite the amount you sink into it. Unless you’re a home builder or professional real estate investor, you may be significantly unprepared for the costs and challenges associated with renovating a fixer-upper.
However, if you prefer a fixer-upper, contact your agent on the available homes you can buy. Then, hire a contractor to estimate the renovation. Be sure it is within your budget and timeframe before going for it. Finally, be sure to never pay a contractor for work they haven’t completed yet or you could find yourself chasing the contractor to complete a job they promised to complete a year prior.
8. A home inspection is not necessary
This particular myth is usually peddled by home sellers who have something to hide. They will tell you that home inspection is just a formality and that you get to save money by skipping it. Don’t fall for this trick!
Skipping the home inspection can be risky as you may be stuck making repairs you could have otherwise discovered during the inspection.
So, conduct the home inspection to ensure that the home is in good condition before buying it. If it isn’t in a good condition, you can ask the seller to fix the faults or reduce the asking price.
9. A mortgage pre-approval means you will get the loan
Many homebuyers think that once they have gotten a mortgage pre-approval, they will get the loan. But that’s not how it works.
Mortgage lenders are known to decline buyers’ mortgage applications even after pre-approval. In fact, it is one of the most common reasons why real estate deals fall through.
Here are some of the reasons why mortgage applications are declined after pre-approval:
- Damaged credit score
- Job loss or change
- Changes in loan requirements
- Issues discovered with the property
- The appraisal is significantly below your offer price
Here are steps you can take to ensure that your mortgage lender does not deny your loan application after pre-approval:
- Watch your expenses
- Avoid debts
- Don’t switch your job (or inform your lender before you do)
- Don’t offer more than your agent thinks the property is worth unless you have enough cash to cover the difference
10. A low credit score won’t get you a loan
Mortgage lenders often check your credit score to determine the type of loan you get. But that doesn’t mean you can’t get a mortgage loan because you have a low credit score.
A low credit score of 580 can get you an acceptable mortgage loan, albeit with a higher interest rate.
Mortgage lenders demand more than just your credit score as criteria for giving you the loan. Other factors such as your income, employment status, debt, etc., will all be used to determine your eligibility for the loan.
So, if your credit score is low, but you have a low debt rate along with a stable income, lenders may still consider you for a loan with reasonable rates.
Let Bost Redevelopment guide you through the home buying process!
Going through the home buying process alone can be daunting. To avoid making damaging mistakes, you need a team like Bost Redevelopment to guide you.
Our expert team of real estate agents will provide all the support you need throughout the house buying process. We will use our network and connection to get you the house of your dream and negotiate with the seller for a favorable deal.
Want to talk more about your options? Please leave us a message below with your contact information and let us know how we can help you.