Myths About the Home-Buying Process

As the real estate industry has changed, the home-buying process has, too. Years ago, there were a number of “facts” that buyers, sellers, and agents took at face value. These facts were, for almost every case, true. Today, however, that has changed. While some of these facts are still a part of the home-buying process, others are not. Some were never really that true or that helpful to begin with. Before you begin searching for your next home, it does help to understand these myths and the truths that go along with them.

DON’T BUY NOW – RATES OR PRICES WILL BE LOWER IN A FEW MONTHS

Despite what people—even experts—may say, no one can fully predict what the real estate market or loan industry will do in the upcoming months. While prices or interest rates may have been falling for several months, that could change. It’s tempting to put off buying a home because you have been assured you’ll save on your mortgage next month, but this is not always the case. You may find that instead of a lower rate or price, you have to pay more for the property you were considering because you waited.

The truth is that you should buy a home when you are ready to do so and have found the right property for you. Waiting for rates to go down often results in waiting too long and seeing rates increase, plus the properties you may have found that fit your needs could go under contract while you watch loan rates change.

YOU SHOULD SPEND AS MUCH AS YOU QUALIFY FOR

Another myth is that you should always buy a property that is near what you have been approved to borrow. Unfortunately, this myth often leads to buyers purchasing a home that is too large for them or that stretches them too far financially. The formula a lender uses to determine how large of a mortgage you qualify for may not take into account your actual monthly budget. Lenders also do not take into account future financial obligations you may have. If you know you will be purchasing a new vehicle soon or helping a child with college tuition, you certainly want to factor those expenses into your budget before you add a high mortgage payment to your obligations

It is always best to determine how much you can commit to yourself, regardless of how much you have been approved for. You also want to base your decisions on your needs rather than buying the most expensive home you can. If you don’t need a large home, it’s perfectly fine to purchase a smaller, less expensive property.

YOU MUST HAVE A LARGE DOWN PAYMENT

When your parents purchased their first home, they may have had to put down 20 percent of the purchase price, but that is no longer the case. Some loans, especially VA and FHA loans, no longer require much, if any, down payment. You will likely need less than 5 percent for your down payment.

It is important to note that if you can pay 20 percent without any financial difficulty, you should. Doing so may allow you to avoid having private mortgage insurance on your loan. If you can avoid this extra monthly fee, you should.

APPLYING TO MULTIPLE LENDERS HURTS YOUR CREDIT SCORE

People often believe shopping around for loans or credit damages their credit score. It is true that inquiries on your credit, also called hard credit pulls, do affect your score. However, if you have several hard credit checks for the same type of loan, it only affects your score once if these multiple checks occur in a short period of time. This means if you apply for a mortgage with three lenders in one month, your credit score only gets hit once with a mortgage inquiry. You are free to shop around with multiple lenders to determine who offers you the best mortgage.

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