There are a few home buying myths floating around that a surprising number of buyers believe that need to be debunked right here, right now.
If you’re in the process of purchasing a home, or plan to in the future, take some time to read through these commonly held myths so you’re in a position to make educated decisions about one of the largest transaction of your life.
Home Buying Myth #1 – The first step is looking.
This is how most buyers start the home buying process, and I can understand why. It’s very noncommittal and allows you to dip your toes into the water before really having to make any decisions. Things are less scary when you don’t have anyone else to let down.
Although it’s true you aren’t letting down a lender, Realtor, or homeowner by deciding not to buy at this time, you are still letting someone down – yourself.
Risking getting your hopes up and your heart set on a home without knowing if you can financially perform on the purchase is only hurting you.
The correct first step is to choose a mortgage lender. I understand that as a Realtor, you’d expect me to recommend choosing an agent first, but by seeking out a lender first, you’ll find out if you can afford to purchase a home.
Though any good and honest Realtor will be happy to help you secure financing options with a mortgage lender, by meeting with the lender first you’ll know if, when, and how much you can afford before your first meeting with a Realtor.
Home Buying Myth #2 – You need 20% for a down payment.
One of the most common home buying myths among buyers is that you must have a 20% down payment in order to purchase a home.
This may be due to the fact that a lot of popular conventional loans require 20 percent down and offer options to reduce or eliminate other costs associated with lower down payments.
It’s important to note that many lenders have different packages that include as little as 0 percent down for situations involving rural areas and veteran’s loans.
You should plan to speak with two or more lenders to find out what product, rate, and down payment options they have to offer.
Home Buying Myth #3 – The only upfront cost is a down payment.
This is one of the most dangerous of all the home buying myths.
The costs of purchasing a home should be covered by both your agent and your mortgage lender, but sometimes the hidden fees get glossed over. There are indeed other costs associated with purchasing a home, including closing costs, state deed tax, and title fees.
In the past, it’s been common for sellers to cover the buyers’ closing costs, (usually 3 percent of the loan amount, depending on the numbers). Although almost everything in real estate is negotiable, in today’s seller’s market, you can count on covering this expense on your own as a buyer.
Home Buying Myth #4 – An appraisal is the same as a home inspection.
If you’re purchasing a home and using a loan to do so, your lender will require an appraisal be done on the property.
The purpose of the appraisal is to determine how risky of an investment the bank is making in loaning you the money to purchase this home. It is not, however, to determine that the home is suitable for use and enjoyment.
An appraiser will spend anywhere from 5-15 minutes in your home typically. Such a short assessment is adequate to determine overall value of the property in terms of a home loan. But it is certainly not enough time to thoroughly inspect the home for health and safety hazards.
A home inspection performed by a (licensed) home inspector is always recommended in addition to the appraisal.
Home Buying Myth #5 – The tax assessed value is the same as market value.
In some cases this is true. However, in most cases it’s not. There is typically a lag of one to two years between the time a tax assessment is done to when records are updated for the public to see.
Sometimes homes sell for more than the posted tax assessed value and some sell for less. The best way to determine if you’re overpaying for a home is to ask your Realtor to perform a comparative market analysis.
Home Buying Myth #6 – Schools don’t matter if you don’t have kids.
School districts play a large role in real estate transactions because homes in the neighborhoods within the highest perceived school districts tend to be more attractive to buyers and, in turn, sell for more.
Most families prefer to live in an area where their children can go to the “best” schools so whether you have kids or not, if you plan to resell the home in the future, this cannot be overlooked.
Home Buying Myth #7 – Home prices are based on square footage.
A common way for home buyers to determine offer prices is to calculate cost per square foot. It’s understandably the easiest way to come up with a number; however, it’s highly inaccurate.
For example, say you have two houses on the same street right next door to each other, each one 2,400 square feet.
House #1 has vinyl flooring, an outdated HVAC system, and foundation problems.
House #2 has natural hardwood flooring, a new HVAC system, and no foundation problems.
Even though they both have the same square footage, but I think we can all agree they don’t have the same market values.
It’s best to rely on your Realtor for guidance in determining an offer price on any home, taking into consideration square footage, interior material selections, exterior conditions, mechanicals, etc.
Home Buying Myth #8 – Building is more expensive than buying.
This is both true and false. The minimum price point to enter into the new construction market is indeed higher than what existing homes start out at.
The current state of the market has existing home sales closing in June increasing by 15 percent over the past year, while new construction home sales closing in June have increased by just 3 percent in the same time period.
Knowledge is power and in this kind of market, it’s important for you to get all of the facts. I hope you found this helpful and that your home buying opportunities seem clearer.
Buying a home in Minneapolis? You might find these helpful…
11 Things Every New Homeowner Needs
7 Ways To Win In A Busy Real Estate Market