1) A traditional story, especially one concerning the early history of a people or explaining some natural or social phenomenon, and typically involving supernatural beings or events.
2) a widely held but false belief or idea.
Myths are commonplace in almost every ancient society. There are still myths today that many people still believe.
Buying a home is one of the most important and expensive decisions you’ll ever make. For that reason alone, you need to use the best, most accurate information you can find when making it. Unfortunately, there’s a lot of bad information out there, often repeated by people with the best of intentions.
This incorrect information and uninformed opinions have developed into widely held myths around buying a home that needs to be corrected. Once you find out the real story behind these myths, you’ll be set up for success in your quest to buy a home.
Here are several myths that home buyers should abandon.
Myth #1: You Need a 20% Down Payment
The myth that a 20% downpayment is a requirement to buy a house has been around for many years and this is probably the biggest myth held by potential homebuyers.
Saving for a down payment is sometimes viewed as one of the biggest obstacles for homebuyers, but that doesn’t have to be the case. As Freddie Mac says:
“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”
According to the most recent Home Buyers and Sellers Generational Trends Report from the National Association of Realtors (NAR), the median down payment for homes purchased between July 2019 and June 2020 was only 12%. That number is even lower when we control for age – for buyers in the 22 to 30 age range, the median down payment was only 6%.
But what about the PMI “bogeyman”. Sure, if you put less than a 20% down payment on a home, you will be required to pay Personal Mortgage Insurance, also known as PMI. PMI, while obviously a cost, is not the bogeyman! The amount that you pay is based on several factors including your credit score, loan-to-value, and other factors, but the amount is not significant.
Plus, it will get you into a home faster. According to a recent article published by Zillow, it takes 6 1/2 years for the average renter to save up for a 20% downpayment.
If you’re like most people and are unsure if you’ll be able to pay 20% of the purchase price upfront, talk to your lender about down payment assistance programs that may be available.
Myth #2: Spring is the Best Time to Buy
Traditionally, spring has been known as the “Spring Selling Season” in real estate. Homeowners put their homes on the market in spring, so that they can close a sale and make their own move in the summer, and be in their new home in time for school to start in the fall.
But the effect of this is that spring is also when more buyers are in the market, driving up home prices. House-hunting in the fall and winter may actually save you money because you’ll probably be competing with fewer potential buyers, which should hold prices down.
Also, in the past year, the traditional hot selling times have been completely upended due to the pandemic. After a dip in demand starting in the spring of 2020 when the first lockdown orders were put in place, demand has surged and stayed high pretty consistently through all four seasons. Time will tell if this trend will continue into next spring.
Myth #3: “I Don’t Need a Buyers’ Agent”
While anyone can find a home by looking on the internet, the job of a buyer’s agent is more than just finding available properties. This is true for resale properties, as well as new home construction.
A good buyers agent can give the lowdown on comparables in the market, help steer buyers away from properties that have potential problems, and provide guidance during the negotiation phase. It’s always a smart idea to have an experienced pro on your side.
Myth #4: Why Buy When I Can Rent
When looking at your monthly expenses, it may seem like renting is cheaper than buying. Taking into account how much you have to pay in down payment, on top of your monthly mortgage payment, your monthly rent check probably looks small in comparison.
But when you look at all of the benefits of owning a home, you’ll see that owning your home makes much more financial sense. First off, instead of giving your rent money to your landlord, you are investing it into your home’s equity. And with mortgage rates near all-time lows, your monthly mortgage payment may be lower than what you were expecting and comparable to your monthly rent payment.
Typically, if you plan on living in the same area for more than a couple of years, it’s smarter to buy your home.
Myth #5: “I Need a 750 Credit Score or Higher”
It’s common knowledge that your FICO® score plays an important role in the homebuying process. However, many buyers have misconceptions regarding what exactly is required to get the loans they need.
While a recent announcement from CNBC shares that the average national FICO® score has reached an all-time high of 706, the good news for potential buyers is that you don’t need a score that high to qualify for a mortgage. Let’s unpack the credit score myth so you can become a homeowner sooner than you may think.
To debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.
Myth #6: 30-year fixed mortgage is the only way to go
The most popular length of a mortgage is for 30 years, with over 80% of homes financed at that length. But that is not the only length of mortgage out there. A 15-year term mortgage has a few advantages over the 30-year team, which is why it is the second most popular mortgage term.
- Generally, it has a lower interest rate
- You’ll build equity in your home faster
- You’ll pay off your mortgage in half the time
Your monthly payment will be higher with a 15-year mortgage, but you’ll pay less in interest over the life of the loan—usually a lot less.
Myth #7: Cash Buyers Always Win
This myth keeps rearing it’s ugly head a lot these days, especially in this frenzied homebuying market. Sure, sellers love the simplicity of accepting a big pile of cash instead of having to deal with buyers who need financing. But an all-cash offer isn’t a guaranteed winner.
Let’s look at it this way. A new listing comes on the market for $500,000 in a great neighborhood. There are several interested parties and the seller receives multiple offers. Whose offer are they going to take? That depends. There are many factors to consider:
- What is the offer price?
- What is the amount of due diligence and earnest money?
- Type of loan program?
- Expected closing date?
- Length of the due diligence period. Are they waiving inspections? Are they willing to put more money into the transaction if the property doesn’t appraise.
A home seller needs to consider all of these factors when comparing offers. We recently listed a home similar to the one described above and our seller DID NOT take the all cash offer. Yes, they were willing to close in 14 days, versus 30 days but the other terms outweighed getting a big pile of cash in 14 days. As our seller said, I can wait two weeks to get a higher offer price.
Myth #8: Once your offer is accepted, the deal is done
This myth is often the moswet surprising, and the most stressful when it turns out to be busted. Getting an offer accepted is a great reason to celebrate, but it doesn’t represent the end of the process or even the end of the negotiations. There are still a number of hurdles that have to be crossed before you can pop the champagne and move into your new home. Here is a short-list of some of the hurdles:
- Home inspection – which could uncover issues with the house that may need to be repaired, and require negotiations with the seller over who should pay for them
- Appraisal – which could tell your lender that the purchase price is different than the value of the property as assigned by an independent appraiser, and can affect your financing
- Financing – which gives the buyer time to obtain a loan to finance the purchase, which is different than a preapproval
- Clear title – which ensures that the seller can deliver a title that is free of liens or any other problems
Until you close on your home, keep in mind that nothing is set in stone. There are still many parts of the process that need to happen, and those can reopen a deal you thought was closed. Prepare yourself because things will come up.
Other Posts from Our Blog
Why This Isn’t Your Typical Summer: Link
How a Change in Mortgage Rate Impacts Your Homebuying Budget: Link
Mortgage Q&A w/Luke: Link
Patience is the Key to Buying a Home This Year: Link
About Log Pond Realty
Home is where your story begins. Home is where hopes and dreams are born, memories are made, and lives are lived. We would love the opportunity to assist you in writing your new story.
We service the Triangle region of North Carolina including Raleigh, Cary, Apex, Holly Springs, Morrisville, Fuquay-Varina, Durham, Chapel Hill, Wake Forest, and Garner.
Contact us 919.589.3576 | firstname.lastname@example.org
Sources: Guaranteed Rate, Inman, Keeping Current Matters