Home buying process for people is usually very stressful. To make it easier and get the answers to many of unknown questions buyers usually ask advice from their family, friends or look up the information on the internet. But instead they should be looking for advice from a professional who really knows, such as real estate agent, lawyer, mortgage broker, or financial adviser.
There are many home buying myths out there. This can stop people from actually buying a house.
Here you will find top 5 home buying myths:
“You need a perfect credit score if you want to buy a home.”
Let me tell you the truth – a good credit score really helps. But you don’t need to have an 800+ score to buy a home. Credit score has a range from 500 to 850, with the majority in the range 600 -700. If the credit score is lower, you will get the higher the interest rate, because it will be higher the risk for the lender. If the credit score is higher, so you will have more options to look for the mortgage.
Myths #2. “You need a 20% down payment if you want to buy a house.”
A 20% down payment would be nice, but not every buyer can afford it. The buyer has to remember, that if the down payment is smaller, you have to pay private mortgage insurance ( or PMI ). Once the buyer makes enough payments that equity reaches 20%, then PMI can be removed.
There are programs for buyers, that you must qualify in order to get them. FHA loans are designed for low to moderate income buyers who can’t make large down payment. This program require down payment as low as 3.5%. There is another program VA, that you can get the house with 0% down, plus it does not require mortgage insurance. But again- you must qualify for it.
Myth #3 “A home will increase the value over time”.
It is a very common mistake for people to think that any property that is bought will be worth more money in the future. Every home has it is own unique features. The buyer decides how much he is willing to pay for the house. If buyer really likes the house, the location, amenities, he might pay the top price.
If the current owner is trying to sell a house just a couple of years after buying it, so it is very possible the the home value remains the same or even decreases. It is going to be very difficult for the owner to hear from a real estate agent that the home they bought a few years ago has not appreciated in value.
Myth #4 “The down payment is the only up front cost”.
The down payment is just the beginning expense of the home purchase price. Closing costs can add another 2% to 5% of home’s purchase price. Sometimes the seller will help with the closing cost, but don’t count on it.
The most important fact is that you should keep an emergency cash savings reserve to cover at least 6 months of expenses, including your new house mortgage monthly payment. This is just in case you have any financial difficulties down the road- like loosing a job or similar. So you have to be prepared.
Once you move in, you might need a new furniture. You might need to make some changes in your new home, fix something or make an improvement-again, you have to have savings for it.
Myth #5. “Buying is always better then renting”.
As I wrote about it here , buying vs renting decision usually depends on your particular situation. It is very important to know how long you are planning to stay here in your new home. I believe the most important factor is how long you are planing of staying in a new home.
When renting you have a freedom to move. When being an owner of a home, you have more responsibility. So you have to make a choice: if you want to pay rent to your landlord, or pay your own mortgage. If you decide to pay rent, then you have nothing to show of at the end of the rent period. If you decide to pay your own mortgage, so the assets will be yours in the future.