Prospective home buyers have a wealth of information at their fingertips before they even speak to a real estate agent. Friends, family and social media offer plenty of advice, though some may be outdated or not applicable to individual situations. Based on responses and insights from real estate experts, here are 15 myths and the truths behind them to guide you correctly.
Myth #1: A 20% down payment is required
Fact: A 20% down payment hasn’t been necessary for decades.
The most common question loan officers receive is about the required down payment. Many loans allow for as little as 3% down if the loan amount is below the “conforming” limit, which is $766,550 for most counties as of 2024. However, putting down less than 20% typically requires paying private mortgage insurance. HUD/FHA loans allow a minimum down payment of 3.5%, USDA/RD loans often require no down payment, and VA loans for military members allow 0% down. Always check with your lender for specific guidelines.
Myth #2: Your pre-approval rate is the rate you’ll get at closing
Fact: Interest rates change daily. The rate quoted during pre-approval reflects current market conditions and personal factors like loan amount, credit score, property type and location. Rates are only “locked in” once you find a home and sign a purchase contract.
Pro Tip: Take advantage of Howard Hanna’s Rate Reducer and Lock & Shop mortgage programs to secure your mortgage rate before closing.
Myth #3: Wait to buy until home prices drop
Fact: Waiting for prices to fall carries risks. Prices might not decrease in many areas due to sufficient buyer demand and limited home supply. If you can afford a home that suits your long-term needs, it’s worth considering buying now.
Myth #4: Buying is always cheaper and a better investment than renting
Fact: Depending on location, renting can be cheaper than buying, and home values don’t always increase consistently. While owning a home can provide asset appreciation and stable monthly costs, renting might be financially advantageous in some areas.
Myth #5: Find a home before applying for a loan
Fact: It’s smart to get pre-qualified or pre-approved for a loan before house hunting. This way, you know your budget and won’t fall for homes outside your price range.
Myth #6: Buying a fixer-upper saves money
Fact: True fixer-uppers often require extensive and costly repairs. You should get quotes for necessary work beforehand and be prepared for potential hidden issues. While you may love the finished home, the process can be expensive and time-consuming.
Myth #7: You must use the lender who pre-approved you
Fact: You can shop around for lenders even after pre-approval. However, changing lenders after going under contract can cause delays and complications, so it’s best to finalize your choice beforehand.
Myth #8: Wait to buy until you can afford your ‘forever’ home
Fact: Waiting to buy your ideal home might mean never buying at all. In some markets, buying a starter home and building equity can be a better strategy, even with higher mortgage rates.
Myth #9: A 30-year fixed-rate mortgage is always best
Fact: Adjustable-rate mortgages (ARMs) can save money over time, especially if rates drop. ARMs start with a fixed-rate period, and then adjust, offering potentially lower rates.
Myth #10: You can’t buy a home with student loans
Fact: Student loans are just another part of your debt-to-income ratio. They can help or hurt, depending on your payment history and overall financial picture, but many people manage to buy homes with student loans.
Myth #11: You must pay the asking price to buy a home
Fact: The asking price is negotiable. Home prices are typically settled through offers and counter-offers. Use comparable sales data to guide your offer.
Myth #12: Excellent credit is needed to buy a home
Fact: Good loans and rates are available for those with less-than-perfect credit. Establishing and using credit responsibly is key to qualifying for a mortgage.
Myth #13: Fall and winter are bad times to buy a home
Fact: These seasons can be great times to buy, as there may be less competition. Spring is popular, but not necessarily better for getting a good deal.
Myth #14: Self-employed individuals can’t buy homes
Fact: Self-employed people can buy homes but may need to provide more documentation of income. Lenders look for steady, reliable income over time.
Myth #15: All lenders are the same
Fact: Lenders vary in terms of rates, fees, customer service and the ability to close on time. Shopping around is crucial to finding the right lender for your needs.
Understanding these myths and facts can help you navigate the home-buying process more confidently and make informed decisions.
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