Here are some common misconceptions about buying a home:
1. Renting is cheaper than owning a home.
This is a common misconception. When you rent, buying a home and getting a mortgage seems expensive because the total cost will likely be in the hundreds of thousands of dollars. However, you have to compare monthly mortgage payments to what you pay in rent. A monthly rent payment can seem cheaper than a monthly mortgage payment, but rent payments don’t come with the benefits of a mortgage:
- You build equity when you own a home. This is a very valuable asset in the long term. Renting doesn’t lead to home equity.
- Rent payments can increase every year. A mortgage can have fixed payments for the term of the loan.
- Owning a home can include tax benefits. Renting does not.
2. You can save money by not working with a real estate agent.
Realtors are vital team members in the home buying process. You can’t afford to make such an important purchase on your own. Real estate agents usually get a 3% commission; this is normally paid by the seller. Realtors can help you get the best purchase price by putting their expertise and comparables to work for you.
Real estate agents are experts in reading purchase contracts, which can be long and quite difficult for the average consumer to understand. Realtors have in-depth knowledge about home appraisals, inspections, opt-out clauses, etc. that can help you. The reality is that not having a Realtor is a recipe for stress and wasting time and money.
3. You should buy a home at the top of your financing range.
You do not need to buy a $400,000 home just because you are approved for a $400,000 loan. On paper, it may look like you can afford that particular payment, but it doesn’t necessarily mean you can or should go that high. You have to factor in your other living expenses that are not included. If you have kids or spend a lot on hobbies or entertainment, you want to think about what you can afford before you get into a situation that becomes overwhelming.
4. You don’t need to have a home inspection on newer homes.
Surprisingly, even new homes need a home inspection. Homebuilders can make mistakes. You should always get a home inspection. A home inspection will uncover any issues you would need to fix in the future, and may uncover serious problems that must be addressed before you purchase the home.
5. It will be cheaper to buy a home that needs a lot of renovating.
Everyone has seen the TV shows where people buy a dated home for cheap, invest some money into renovations and make it their dream home. While this is great, in theory, it rarely ever happens in reality. If the house needs new carpet or paint, those are easy projects. If you need to move walls, you may want to move on.
6. Real estate agents don’t care which lender you use.
According to the Real Estate Settlement Procedures Act (RESPA) of 1974, real estate agents and lenders can’t pay each other a referral fee for referring customers. But real estate agents will often suggest a local lender who they themselves trust, and who is experienced with your area’s local taxation rules, settlement procedures, and appraisal methods.
7. It’s a bad (or good) market for buying.
There are times when the local market is in favor of the seller or buyer. But buying a house depends on your situation and should not solely be weighed against what people say “the market” is doing.
8. Homes are highly overpriced in today’s market.
Markets do fluctuate. But it’s more about your financial situation, and less about the price of the real estate market—interest rates and home prices have remained steady for the past few years. Home buying has been affordable for people in the middle-income range. Your mortgage advisor will look over your financial situation to determine when you will be ready to buy a home.
9. Online home value estimates are accurate.
Online calculators can get a reasonable estimate based on the neighborhood and other data regarding the home. Still, it isn’t as accurate as a comparative market analysis done by a real estate agent. If you have questions about estimated values, you should ask your Realtor.
10. No new homes are being built.
If you are looking for a new construction home and can’t find one in your area, talk to a local real estate agent. They might be able to show you areas where the builders are working on new construction homes.