10 Home-Buying Untruths to Forget Immediately

I have been in the business for ten years and worked with both experienced buyers and first-time buyers.  One of the most satisfying parts of my job is guiding first-time buyers through the process.  What still surprises me, that even with the wealth of information buyers have access to, several untruths still persist.  Based on my conversations with numerous buyers over the years these are the common myths, misunderstandings, or questions I commonly answer.

Untruth #1 – Having a 20% (or more) Down Payment is a Must

Not true.  With less than 20%, you likely will need to pay for PMI (Private Mortgage Insurance) to protect the lender.  Once your equity reaches 20%, that PMI payment often goes away.  VA Loans, for example, can be 0% down as are USDA Loans.  FHA Loans require 3.5% down.  There are many programs at the State and Local level that offer low down payment loans (and down payment assistance). What is true: in a multiple offer situation having less than 20%, when other buyers have more (assuming the other elements of the offer are similar), can put you at a disadvantage.

Untruth #2 – The Pre-Approval Rate is the Rate

Not true.  Rates change daily.  The rate you are quoted depends both on your individual financial situation and current market conditions.  Until you “lock” your rate later in the process the rate won’t be the rate

Untruth #3 – Wait to Buy Until Prices Drop

Not true.  Unless you plan to sell in the short term, say three to five years, you likely will see that prices will continue to increase.  There will be certain areas of the country that will decline in the short-term.  Overall, there is a supply shortage since home building has not kept pace with household formation for decades.  That will takes decades itself to balance out.

Untruth #4 – Buying is Cheaper than Renting

Not true.  Given the rise in prices, renting in many area of the country is cheaper.  But, when you are a tenant you are at the mercy of your landlord – they may increase the rent substantially, they may not renew the lease, they may sell.  When you own, you lock in your payment (taxes and insurance increase over time) for 30 years assuming a fixed rate mortgage for that term.  Rent would go up each year.  So while the mortgage payment might be more initially, overtime it would be less than renting.  The costs of maintaining the home also need to factored in.  Bottom of Form  However, a home you own is an asset that can appreciate over time, provide a relatively stable monthly cost, and create generational wealth.

Untruth #5 – You Must Use the Lender that Pre-Approved You

Not true.  The pre-approval is great starting point, but you are not committed to that Lender.  You should shop around and compare rates and fees.  At some point you need to apply for financing on the property you are buying and at that point you need to commit to a lender so the lender can start the process of approving the loan.  The decision should be made soon or right after you have an accepted offer.

Untruth #6 – Buying a Fixer Upper Saves You Money.
It depends.  We are talking about more than painting and carpet here.  Think: Kitchen, Bathrooms, HVAC, Roof, Windows, Siding, Landscaping, and more.  And, remember that a Home Inspector can’t see behind the walls.  This is often a good strategy to get into a more desirable area, but hidden costs can increase quickly.  The better bet is a well-maintained home that is just dated.

Untruth #7 – The 30-year Fixed-Rate Mortgage is the Best Choice

Not true.  For many locking in the cost of housing payment (not including insurance and taxes) has benefits.  Your payment as a percentage of your income will go down assuming your income increases over 30 years (which is a safe assumption).  That said, it depends on your individual financial situation.  It it fits your financial situation and Adjustable Rate Mortgage is worth considering.

 Untruth #8 – You Can’t Buy a Home until Your Student Loans are Paid Off

Not true.  Repaying student loans on-time works to build your credit score and credit history.  Student loans do impact your debt-to-income ratio and how much a lender will lend. Many people have student loans and a mortgage.

Untruth #9 – You Need to Have Excellent Credit to Buy a Home

Not True.  It helps.  And, will help you get the lowest possible interest rate.  There are attractive rates for buyers with less than with less-than-perfect credit.  There are several Federal and State level programs with credit score as low as 580.

Untruth #10 All Lenders are the Same

Not true.  Getting a mortgage is more than an exercise in rate shopping, and there are significant differences among lenders when it comes to the customer service, the ability to close on time and the fees attached to their loans.  Some of the Lenders on my list, might not have the lowest fees, but I know they will get the loan closed on time and can problem solve along the way.  The cheapest is not always the best.

Doug McNeilly is a REALTOR® with Coldwell Banker Realty in Wayland, Massachusetts.  He specializes in Wayland, Sudbury, Natick, Framingham and the Greater Boston Metro West Area.  He can be reached at doug.mcneilly@cbrealty.com or www.dougmcneilly.com