Top 5 Home Buying Myths

IMG_3355.Blog 07_21_2017. 5 home buying mythsHome 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:

 

Myth #1:
“You need a perfect credit score if you want to buy a home.”

Truth:
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.”

Truth:
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”.

Truth:
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”.

Truth:
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”.

Truth:
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.

 

Who is a Landlord?

IMG_3900 - Who is landlordA landlord is person who owns real estate, such as a home, apartment or office space, that is rented for a fee to another person. A renter pays rent money to the landlord, in order to live at the property or have business there in case of office space.

The landlord uses rent money to pay real estate mortgage, taxes, up keep, maintenance and making the repairs. The landlord has to save money every month just in case property needs some major renovation. Don’t forget the times, when there is a vacancy at the property, so the landlord has to make mortgage payment from his savings.

Landlord is using rent money for:

  • paying real estate mortgage
  • paying real estate taxes
  • up keeping
  • maintenance
  • making repairs
  • in case of vacancy
  • emergency fund if something major needs to be repaired ( roof, etc).

The landlord is responsible day to day details and management of the rental property. He is responsible for rental advertising, repairs, rent collection, selecting renters, running their credit,terminating the lease.

Some landlords hire the property managers to be responsible for managing of the rental. In this case the renter might not even know who the landlord is.

As a renter, you are responsible to pay rent on time and keep the property clean and safe

A landlord is responsible to providing needed repairs and performing property maintenance.

 

5 Advantages of Renting

IMG_2787 - CopyWhen looking for a new place to live, a lot of people think about renting vs buying. It is a personal choice. You can’t say one is good and the other is wrong.

Here is my list of 5 advantages of renting a home:

1. No Big Down Payment.

When you move into a rental home, you do not have to have a big down payment, like when buying a house. In order to move in into rental, you just usually need to have first, last month amounts, and a safety deposit, which is usually equals to 1 month rent amount.

2. No Responsibilities for Repair or Maintenance.

When you rent a property, you are not responsible for  maintenance or repair expense. When you pay rent, the landlord is responsible for taking care of the all  the repairs and maintenance costs associated with the rental. If the sink is not draining, if the faucet in the kitchen sink is leaking, if the appliances stopped working, as a renter, you are not responsible to fixing any of it. Your whole responsibility is to let the landlord know the issue, and he is responsible to fix it.

3. No Real Estate Taxes

Renters do not have to pay real estate taxes. Taxes are estimated bases on the value of your house, and it varies in different areas. So, once you own a house, you are responsible for this payment. Property taxes can be a significant amount.

4. Flexibility to Move

The lease period is usually 12 month long, but it can be a month-to-month basis. You are free to move at the end of the period. But if you own a home, you can’t get away from it easy in order to sell it. If you need to sell it fast, you can sell it cheaper, but then you lose money in process.

5. Lower Monthly Costs.

When you pay your rent, sometimes you can get lots of utilities included, like cable, water, internet, garbage pick up etc. You can get lots of amenities included too, like pool, gym, etc. So you don’t have to pay extra every month.

 

Renting vs Buying

IMG_2791 - Copy (2)When looking for a new place to live, the first question you should ask yourself “Do I  want to rent or buy?”. Renting vs. buying is a personal decision. It largely depends on your specific circumstances at that stage of your life.

If you are a young person who just got your degree and new job offer, you might want to rent first. If you are a young professional with few years of working experience under your belt, you might want to keep renting too. If you get a new job offer on the other side of the country, it is so much easier to move from the rental unit.

You have a psychological freedom when you rent, because your rent is a 12 month commitment to live at that place. Sometimes the rent is on a month-to-month, what gives your even more freedom. You don’t feel trapped in a specific location and have a freedom to move.

For a person with an established career, who has a family, it might be better to own. Once you want to settle down in one area and establish your roots there, it is better to own. You can look at the house like a savings account when money goes in every month, the house appreciates and you get the money back once you sell it. Home equity can be borrowed against while you own the particular home.

But don’t forget that with home ownership you are responsible for routine home maintenance, repairs and fixing the issues, so the money you spend doing it can quickly add up. But again- there is no more mortgage payments, when the mortgage is finally paid of, and the home finally becomes your property.

Here are some basic questions to consider when thinking about buying a home:

  • How good is your credit? You don’t have to have a perfect credit score, but the higher the score, the more options you have.
  • How long do you plan to stay there? If you are planing on staying for just a couple of years, renting might be a better option.
  • How much home can you afford? If you can not afford a home big enough to fit your family in a few years, it might be better to rent while you save a more money.
  • Ho much money have you saved? If you don’t have enough money saved for the down payment, and have an extra emergency fund, then you better rent.

There is a lot more to the rent vs buy decision than money amount each month. It is not just about using a financial calculator to see which option costs you more money. You have to look at your life circumstances at the moment and decide  what is the best thing for you.