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…If you want to alleviate some of the uncertainty that comes with buying your first home, it’s time you
learned the truth about 6 home buying myths too many consumers still believe.
The original article has been edited here for length (…) and clarity ([ ])
1. Working with a real estate agent is expensive
Actually, if you’re working with a real estate agent to buy a home, it’s free. Buyers usually don’t pay for the work their agents do in helping them find and make offers on homes. When you buy a home, the sellers typically pay the commissions of both your agent and theirs [with] the funds for this coming from the proceeds of the home sale…so there’s no good reason to skip working with a real estate agent if you are a buyer. (See also: 5 Things Your Real Estate Agent Wishes You Knew)
2. You need a down payment of 20 percent
…Many buyers mistakenly think that they need to come up with a down payment equal to at least 20% of a home’s final purchase price….but, fortunately, [however,] you can buy a home with smaller down payments. FHA loans, for instance, often require down payments as low as 3.5% of a home’s final purchase price. You can also qualify for conventional loans with down payments as low as 3%.
Remember, though, that you must pay for private mortgage insurance — better known as PMI — if you don’t come up with that 20% down payment. This can add extra costs to your monthly payments until you build up at least 20% equity in your home. (See also: Do You Really Need a 20 Percent Down Payment for a House?)
3. Spring is the best time to look for a home
Traditionally, buyers have flooded the housing market in the spring…but there really is no one time of the year that is “best” for buying a home.
You might even find better bargains on homes if you start your search before or after the spring. Say you start looking in the summer. There may be fewer homes available, but you’ll also find buyers who are willing to negotiate on their asking price as they become more desperate to sell. The same goes for winter, when sellers may be looking to relocate quickly. (See also: 5 Reasons Fall Is a Great Time to House Hunt)
4. The best mortgage is a 30-year, fixed-rate loan
The traditional 30-year, fixed-rate loan comes with two big positives:
- The monthly payment will only fluctuate slightly over the life of the loan, and
- the monthly payment is relatively low because the loan term is so long.
…[That being said, however,] a 30-year, fixed-rate loan is [not necessarily] right for every buyer. If you take out a 15-year, fixed-rate loan, you’ll have a higher monthly payment, but you’ll also pay tens of thousands of dollars less in interest. If you plan on spending five years or less in the home you are buying, an adjustable-rate mortgage (ARM) might even be a better choice because it comes with lower initial interest rates. Your best move is to work with a mortgage lender who can help you determine which loan product is best for you. (See also: Is a 15-Year Mortgage a Good Idea?)
5. Once a seller accepts your offer, your worries should be over
…After you and your seller sign a contract, your lender will require that you pay for an appraiser — about $400 to $500 — to determine the current market value of the home you are buying. If that market value isn’t at least equal to the money your lender is giving you, your deal could flop. For instance, if your appraiser judges that the home you want to buy is worth $150,000 and you’ve agreed to purchase the residence for $225,000, your lender might agree to only loan you $150,000. That means you’ll have to come up with the remainder out of your own pocket or convince the seller to lower the asking price. If these solutions aren’t available, your deal could fall through…
6. The value of the home you buy will always appreciate
We all hope that the home we buy will be worth more when it’s time to sell, and often, it is, but there are no guarantees that the home you buy will appreciate in value, no matter how long you hold on to it.
Don’t believe anyone who tells you that housing prices only go up. Those buyers who purchased in 2005 or 2006, at the height of the residential real estate boom, know that housing prices can go the other way, too. Many of those buyers are still living in homes that are worth less today than they were when they first bought them. (See also: 4 Worst Reasons to Buy a House)
Related Articles From the munKNEE Vault:
1. Your House: A Home, An Investment or a Ponzi Scheme?
In the past few decades, the concept of home ownership has been completely turned on its head. Previously, homes were considered a very long-term consumption good. No one ever considered tripling the value of their homes by retirement time and selling them to move beachside yet, somehow along the way, this became a reasonable investment expectation. Even today, home buyers still make their purchases with the hopes of escalating prices. It begs answers to these questions: Is a house just a home? Should a house be expected to behave like an investment? Is the housing game nothing more than a Ponzi scheme where the end buyer before the market corrects becomes the “greater fool”? Let’s try and answer those questions.
2. Buying A House Today Will Turn Out To Be A Ruinous Experience In 5 Years Time – Here’s Why
The world will soon realise that all the assets that have been inflated to bubble levels will lose most of their value. Indeed, if we look at what could happen to house prices in real money (gold), the risk is such that buying a house today is likely to be a very costly and perhaps ruining experience.
3. U.S. Housing Market Should Continue Strong Until 2020, Then Subside Through 2025 – Here’s Why
Demographics have been a tailwind for the housing market increasing the pool of potential first buyers on the order of roughly 250,000 households per year since 2010. An analysis of the situation below shows that the strong demographic tailwind in the housing market should continue through 2020, and thereafter, while not turning into a headwind, gradually subside through roughly 2025.
4. Home Prices Now At All-Time Highs: How Are Real Estate Prices Doing In Your Area
The monthly S&P/Case-Shiller home price indices were released earlier this week, and below we provide a look at the results so you can see how real estate prices are doing in your area of the country…
5. Cities Where Real Estate Prices (Values) Will Drop 25-50% in 2018!
Real estate ‘values’ will drop 50% in cities such as Toronto, Vancouver and San Francisco and 25% in many other cities around the world. Here’s why.
6. Mortgage Interest Deductibility Should Be Eliminated! Here’s Why
“Buy as much house as you can,” real estate agents urged clients. “The more you buy, the bigger your tax break” is their advice using the mortgage interest deduction (MID) to explicitly promote over-investment in housing. Unfortunately, such advice fueled the previous housing boom and exacerbated its bust and could do so again.
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