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Written By Ellie BrooksPublished 10/06/22
Buying a home is a serious undertaking. It’s a complex process, and many people—even supposed experts—repeat clichéd advice for the sake of simplicity. This has led to some enduring myths about buying a home that mislead first-time home buyers.
Do you really need to pay 20% of a home’s value up front? Should you look for a home only in the springtime? Is it always cheaper to rent a home than it is to own one? There are caveats and exceptions to even the most widely accepted rules of real estate. Let’s dispel the most prevailing first-time home buyer myths.
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For many Americans aspiring to homeownership, the down payment is the most significant obstacle. Conventional wisdom calls for putting 20% of the home’s value up front. This is one of the most widespread myths of home buying. According to the National Association of Realtors, 35% of consumers think a down payment of 16%–20% is required to buy a home. An additional 10% of consumers think more than 20% is required. For the median home in the United States in 2022, that’s more than $85,000—a significant chunk of change for the average person.
The fact is, however, that a 20% down payment is not mandatory. Today, there are home buying assistance programs that enable first-time buyers to put significantly less down. The National Association of Realtors has found that first-time home buyers, on average, have paid only 6%–7% up front since 2018.
Home buyers who put less money down often purchase private mortgage insurance (PMI) to secure a home loan. PMI raises your monthly payments, but you can usually cancel it once you reach 20% equity in your home. Other home buyers find assistance through the Federal Housing Administration (FHA) or other government agencies.
Your credit history certainly plays a role in your ability to secure a mortgage with a favorable rate, but you hardly need a credit score of 850 to buy a home. Several factors determine your credit score: debt or credit utilization, credit history, timely payments, and more. Lenders may be willing to look beyond these categories to determine loan eligibility. For example, a lender may consider your debt-to-income ratio or work history. In such cases, you can still secure a loan with a score that is less than perfect.
An FHA loan is another option for home buyers with lower credit scores. The agency will issue a loan to eligible buyers with scores of 580 and above. Buyers with credit scores as low as 500 may also receive a loan, though they must put more money down.
Credit is important, and you should try to improve your score, but don’t assume that your credit score will immediately disqualify you from homeownership.
Most people assume a 30-year mortgage is the best loan option when buying a home, but that isn’t always the case. A 30-year mortgage will have lower monthly payments than a 10- or 15-year mortgage, but you will likely pay more out of pocket over time because of a higher interest rate. If you can handle the higher monthly payments of a mortgage with a shorter-term, that may be the wiser choice.
Similarly, fixed-rate mortgages are not for everyone. They’re popular because of their relative simplicity and predictability, but in certain circumstances, an adjustable-rate mortgage is superior. Adjustable-rate mortgages tend to be cheaper than their fixed-rate counterparts, and they can benefit home buyers who purchase a property in a period of falling interest rates. Adjustable-rate mortgages have a reputation for being unpredictable, but they are still bound by rules and regulations. With a little advance research, changing monthly payments won’t take you by surprise.
Traditionally, the housing market is most active in the spring through the summer. According to Zillow, more new homes are listed for sale in April than in any other month. Inventory remains high through August and September.
If you would like an abundance of options as you search for a new home, April or May is the time to go shopping. But while options may be more limited in the late fall and winter, you can find much better deals. Homes are significantly less likely to sell above listing price in October, November, and December.
In short: shop in the spring for inventory and late fall or early winter for deals. Late summer or early fall can provide the best of both worlds.
Buying a home is expensive, and people are eager to save money where they can. It’s not uncommon for home buyers to balk at a real estate agent’s 5%–6% commission and attempt to personally handle the transaction process.
Many of these home buyers quickly regret that decision. Realtors are professionals who know the housing market and real estate process inside and out. The right agent will negotiate in your favor, alert you to potential pitfalls and oversights, and help you with your legal and formal obligations as a buyer.
Another one of the most common real estate myths is that homeownership is more expensive than renting. This isn’t always true, and even if it were, it’s a shortsighted perspective on homeownership. A significant benefit of renting is that the tenant is not responsible for the property’s mortgage, insurance, taxes, and maintenance costs. These combined costs of property ownership might exceed market-rate rent for an equivalent property, but that may change over time. Rents can rise more quickly than mortgage payments and taxes.
It's also important to note that you’re building equity in your home as you pay off a mortgage month to month, and if your home appreciates in value, you can realize those gains when you sell your home. Once a tenant pays rent, that money is gone.
Whether you follow conventional wisdom or take a nontraditional pathway to homeownership, you can protect the most significant purchase of your life with a home warranty. Liberty Home Guard has plans designed specifically for new home buyers, and our coverage provides robust, affordable support for all standard home appliances and systems. Use our website for a free quote or call (866)-432-1283.