Scary (untrue) stories about the market make many would-be buyers downright terrified when faced with the homeownership process. These ghost stories can spread the heebie jeebies like an opened chocolate bar in a warm treat bag.
For example, how many times have you heard that you need 20% down to purchase? Or that you should just forgo a home inspection?
The truth is, these and many other real estate horror stories are nothing more than tall tales.
Still a little scared? Fear not! Read on to debunk some of the most terrifying myths about homeownership and the homebuying process.
Renting is Cheaper Than Buying
The misconception that buying always costs more prevents many potential buyers from taking the leap.
In some US cities, a monthly mortgage payment may actually total less than your rent. This may be especially true when you factor in renters’ costs for parking, pools, a gym, pet rent and dog park access.
You’ll be paying for housing either way, but the difference is that a mortgage loan doesn’t last forever. Once you’ve paid off your mortgage, your home will be yours. Essentially, instead of going right into your landlord’s pocket, your monthly payment is used to pay down what you owe on asset that will eventually be yours and yours alone.
Plus, if your home increases in value in the future, you may be able to use the equity to purchase your next home or to potentially fund your retirement. There’s nothing spooky about return on investment!
You Need a 20% Down Payment
The lore of the 20% down payment has been passed down from generations of homeowners past.
Of course, there is some truth to the figure, as larger down payments mean less money borrowed and less interest paid overtime, but it’s time to dust the cobwebs off this exaggerated tale. Different loan types require different down payment amounts and, if aspects of your application are stronger, you might be able to get away with less than 20%.
Service members, Veterans and eligible surviving spouses obtaining a VA loan may even be able to put 0% down! Loans offered through the US Department of Agriculture in qualifying rural or suburban areas may also be available with 0% down. Borrowers seeking a Conventional home loan may be able to qualify with as little as 3% down and FHA loan seekers may be able to qualify with as little as 3.5%.
Keep in mind that, FHA loans always include a mortgage insurance (MI) payment that remains for the life of the loan and if you are obtaining a conventional loan and you do put less than 20% down, you will need to factor in the cost of private mortgage insurance (PMI). PMI protects the lender in case of default, and often costs $30-$70 per month for every $100,000 borrowed. Keep in mind that PMI isn’t paid forever and can eventually be canceled. Plus, it may mean you can purchase a home before saving up 20% of the purchase price, so don’t let it scare you away from homeownership!
You Have to Pay Student Loans Off First
Many young potential buyers are busy battling vexing student loans, but it shouldn’t deter them from the goal of homeownership! In fact, in 2021, more than one-third of first-time buyers had some amount of student loan debt.
Debt of any kind isn’t a deal breaker, but it does affect your debt-to-income ratio (DTI). To determine your DTI, divide your total recurring monthly debt by gross monthly income. Most lenders would like to see a DTI under 43%.
Your DTI compares the money you make to the debts you pay on a regular basis. Basically, when a mortgage professional works to qualify you for a loan, they want to be sure you’ll have enough money left over each month (after paying bills) to make your mortgage payment too.
Student loans can also affect your credit score. While missing a payment or paying late can hurt your score, consistently making student loan payments on time every month can give your score a boost. That’s right, student loans may actually be your secret weapon!
If you stand to benefit from upcoming student loan forgiveness measures, consider saving the monthly amount you would have paid on qualifying loans. Before you know it, your loan balance and DTI will drop while your down payment savings will steadily grow.
The Asking Price is Set in Stone
Some buyers worry that their mortgage payment will practically be displayed on their tombstone. Intimidating asking prices may initially keep you from making a meaningful offer, but the reality is that there’s often some wiggle room.
In a buyer’s market, the seller may be willing to accept a lower offer simply to get the home off their hands. If the neighbors are asking $25,000 less, you also have some leverage. After all, what’s stopping you from checking out their comparable, more comfortably priced place? The seller may recognize the competition and accept a little less.
While it’s not necessarily a buyer’s market yet, with interest rates rising and more inventory available, buyers now have more power than they have had since before the pandemic. Keep this fact in mind as you begin the home search.
You Don’t Need a Home Inspection
No scare tactics here – skipping a home inspection could actually be a nightmare. A home inspection is more than checking for creaky doors, shattered windows or excessive cobwebs. A new home is a huge investment, and a thorough inspection is the only way to ensure you’re not walking into a nightmare of faulty wiring, termite damage or foundation cracks.
While it may seem like just another upfront cost, it’s nothing compared to the chilling charges you could face further down the line if an issue were to arise. While homebuyers have opted to skip this step in the recent red-hot market, it might not a good chance to take.
You’ll sleep soundly knowing that everything is up to code in your new abode.
The Long and Short of Scary Homebuying Stories
Homebuying can be nerve-wracking, intimidating and downright difficult, but don’t let a few tall tales prevent you from taking the leap. The truth is, the homebuying process can be far easier than you expected, particularly with some background knowledge, a little preparation and the right team. Some might even say it’s a treat.
Published on October 28, 2019
