7 Common Misconceptions About Buying a Home
There are certain cultural ideas that everyday Americans generally believe. Among those are things like, “paying taxes is the right thing to do,” or “it’s your civic duty to vote.” But chasing the American dream of “buying a home” is not always a truism.
In fact, when people say, “buying a home” makes the “most sense,” that may not be the case for everyone. While buying a dream home can be an excellent investment, you may want to unpack some of these misconceptions before making what could be the largest purchase of your lifetime.
1: Buying Always Beats Renting
If you think about this absolute truth in a vacuum, then probably. But in the real world, there are numerous factors to consider. For example, someone who has landed their first big job suddenly has enough financial stability to become a homeowner. But, that job could also be just a stepping stone in the industry or specific company. Having the agility to relocate and pursue opportunities quickly could be a strategic career advantage. It may be prudent to wait until you are ready to set down roots before buying a home.
2: Real Estate is Always a Good Investment
There are people who like to make witticisms such as “buy property, they aren’t making more of it.” The humor might be lost on homeowners who went belly-up after the financial crisis about 10 years ago. This is not to say that everyday people should not buy because a phantom crash could occur. In fact, buying a home is generally a sound investment. But, it’s essential to check the prevailing economic and real estate winds to make sure it’s a “good time to buy.” Real estate is usually a good investment when done carefully.
3: Banks Require 20 Percent Down
This is a common misconception that too often inhibits people from buying a home at an opportune moment. While having a down payment of 20 percent or more may have advantages, some FHA programs allow borrowers to have as little as 10 percent if they enjoy a reasonable credit score. Another point is that there are also programs for veterans that require no down payment. Although some lenders may require mortgage insurance with smaller down payments, do the math on monthly premiums and refinancing opportunities. The point is that down payments are more complicated than the common 20-percent myth.
4: Renters Save Money on Property Taxes
This common misconception trails back to a lack of understanding of the real estate business. People who say “buying a home” means you have to “start paying property taxes” don’t understand the nuances of the business. Anytime a tax is leveled on a product or service, those costs are passed along to the consumer. If you are renting, your landlord passes his property taxes on to you. This misconception is so far afield that renters actually pay someone else’s property taxes. If you own a home, at least you are only paying your own.
5: Lenders Only Green Light Mortgages People Can Afford
Nothing could be further from the truth. The loan application and approval process look at things such as debt-to-income ratios and credit scores to determine the maximum amount you can borrow. They are not taking into account your lifestyle or surrounding purchases. Many experts agree that home buyers are wise to keep payments under 30 percent of their monthly gross income.
6: 30-Year Fixed Mortgages are Always the Best Option
Deciding on a loan product entails calculating your personal finances and considering your long-term goals. Although 30-year fixed mortgages often provide low and consistent monthly payments, they also come with a lot of interest. Over the life of the loan, you could pay substantially more interest than a shorter-term loan. On a 15-year mortgage, you could owe nothing on the property in half the time. Think about it.
7: Monthly Obligations Will Never Change
People who secure a fixed-rate mortgage often believe their home costs won’t change. That’s a tragic misconception because property taxes may increase, and so could insurance costs. One way that homeowners are dealing with the issue is to buy in a region that doesn’t have property taxes. Not every state does. Another underused tool is the homestead exemption. Some areas allow home buyers to lock in property taxes for the long haul under certain circumstances.
If you are considering buying a home, speak with a real estate professional, and lender about your options. Take the time to assess your finances and long-term goals. Buying a home can be a terrific opportunity if done wisely.
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