Top 10 Home Buying Myths

Brookings Home Team - What Are the Most Common Home Buying Myths

Are you about to become a first-time home buyer? Maybe you're expecting a baby and you need more space for the new arrival? Or perhaps you've recently transitioned into empty nesters and you're ready to downsize? Whatever the case might be, buying a house in Brookings, SD, can be a challenging endeavor.

As the real estate market continues to sizzle, there is no shortage of information (and misinformation) on the Internet, social media, television, and even our closest friends or family members. So how do you separate fact from fiction? Fortunately, the professionals at Brookings Home Team are here to clear up any real estate rumors with their top 10 home buying myths.

1. Only people with high credit scores can buy a home.

It’s true that having a poor credit score can increase your down payment and interest rate; however, home buyers also have more options than ever if their credit is less than perfect.

While most lenders need a credit score of 620 or higher, FHA loans only require a score of approximately 580 (or sometimes lower). Keep in mind that credit isn’t the end all be all for lenders, as they can also take into account things like your rent and bills, provided you pay them on time.

2. A down payment should be at least 20 percent.

Perhaps the most common home buying myth out there today, it’s widely assumed you need a 20-percent down payment to buy a house. Nope!

Although putting down 20 percent (or more) is ideal, there are various loan options that require much less money, including FHA loans at roughly 3.5% and VA loans for veterans, military service members, and eligible spouses that may not require a down payment at all (for those who qualify). Just remember, if your down payment is less than 20 percent you could be required to pay extra for mortgage insurance.

3. Your down payment is the only upfront cost of buying a home.

In addition to the down payment, home buyers will need to pay closing costs. What are closing costs? These are the products and services related to your mortgage transaction and they usually range from two to five percent of the house’s purchase price.

You might be able to add these closing costs to your total mortgage amount, but that also means you will have to borrow more money and pay more interest on that larger loan. And don’t forget about further down the road. While saving up for a house, make sure you budget for furniture, appliances, repairs, and improvements.

4. You need to choose the mortgage lender with the lowest starting interest rate.

When buying a home, money will undoubtedly be a significant factor in most decisions, but it’s important that it not be the only thing you look at. Just because a financial institution may have a low, starting interest rate doesn’t necessarily equate to a lower, long-term payment.

For instance, an adjustable-rate mortgage (ARM) will usually have a lower rate to start, as opposed to a fixed-rate mortgage. However, the interest rate on an ARM will reset from time to time, which could increase your rates and make your payments higher. Also, consider who is offering a lower starting interest rate. Not only can a less-than-reputable lender cause you to lose out to competing offers, but it’s also easier for a real estate agent to work with an established financial institution.

5. Always buy a home equal to the loan amount approved by your lender.

Have you ever heard of the phrase "house poor?" According to your financial institution, you may be able to afford a $600,000 house, but that doesn’t mean you should do it.

Lenders partly base their decisions on a debt-to-income ratio and though it’s nice to have the flexibility of being approved for a larger amount, it’s important to consider all potential homeowner bills, future family plans, and lifestyle expenses. You don’t want to overextend yourself on a nice, new home, only to pinch pennies in every other aspect of your life. Instead, create a detailed budget upfront and think about a monthly house payment you’d be comfortable with.

6. You don't need a home inspection before buying.

Whether you’re buying a new home in Brookings or an older house, don’t try to bypass the home inspection. If you’re financing a house, chances are your lender will require one, but this is an important step in the home-buying process. Not only will a home inspection help you understand how much your house is worth, but it can also expose any problems or repairs that would increase the home’s selling price.

7. Buy a fixer-upper to save money.

If you’re the creative type that enjoys watching the hundreds of home improvement shows currently on TV, the low price of a fixer-upper could be tempting. However, here are some things listed below that could come into play during a home renovation:

  • Do you have the time?
  • Do you have enough money budgeted for a home renovation?
  • How much of the work will you be doing yourself?
  • Are you aware of the building codes and zoning laws in your neighborhood?

A fixer-upper might seem like an affordable way to get your dream home, but you could just as easily find yourself in that episode of your favorite home improvement show where the home buyer unknowingly purchases a house with a bad foundation, dilapidated roof, or mold damage.

8. Make sure you buy your dream home.

Just like home improvement TV shows, there is also no shortage of shows that document the house-hunting process. While we can all question how authentic these episodes actually are, one aspect is very real: you will have to compromise.

In a perfect world, every home buyer would get their dream house. Unfortunately, in real life, most of us will have to make a few concessions—and that’s okay! It’s perfectly fine to start with a long wishlist, but your ability to prioritize will be your best ally during the home-buying process. Plus, a shorter list of realistic must-haves will only make things easier when it comes time to meet with a real estate agent.

9. Renting is cheaper than buying.

This is not always the case. There are benefits to both buying and renting. The main question you have to ask yourself is this: Does buying a home make sense for my current living situation?

Nearly anyone who is renting right now is aware that rates have increased. In fact, your monthly rent could be as much as a mortgage payment. As we’ve discussed, there will always be upfront costs when buying a house, but if you plan on staying in the same place for at least five years (give or take), buying rather than renting may save you a significant amount of money.

10. You don't need a Realtor until you're ready to buy.

As we stated above, you probably shouldn't hold out for your dream home, but working with a real estate team will increase your odds of getting those items on your wishlist and it’s never too early to begin the process.

The real estate experts like the ones at Brookings Home Team have an unrivaled knowledge of Brookings County and its surrounding communities, and tools such as the Multiple Listing Service (MLS) will alert them to any new, available houses in your search area. Plus, our Brookings Realtors are with you every step of the way, providing valuable information, answering questions, and helping negotiate offers. Call our offices today at (605) 691-3023 because it’s never too early to start searching for your next, new home.