“Don’t believe everything you think.” Rarely is this advice truer than when you are buying your first home. Myths you’ve learned could mislead you; unwinding those home-buying myths can make your first home buying experience successful. Let’s explore some of the more common myths.
1. Now is Not a Good Time to Buy
Real estate has appreciated a lot recently. Many home buyers believe that they should wait until prices come down to buy homes.
Don’t. You cannot time the real estate market. We can pinpoint the peaks and valleys of the market about 8 or 9 months after they happen. If you wait, the market may have gone up 20 percent before a 10 percent correction. You’ll still pay 10 percent more for your new home, and until then you’ll pay rent for months or years when you could have started paying off your new mortgage.
The time to buy is when you are ready — financially and emotionally. Life events such as getting married, having children or getting your first stable job usually drive this. When you’re ready, it’s time to buy.
2. You Get Huge Tax Savings
The interest, property taxes and mortgage insurance you pay as a homeowner are tax-deductible. However, if you don’t itemize deductions you probably take a standard deduction currently. In many cases the homeowner’s deductions are less than that. See your tax advisor to review your circumstances and see how the Tax Cuts and Jobs Act may affect you as a new homeowner.
3. It’s Cheaper to Rent Than to Own a Home
If you look only at monthly outflow, this is usually true, but it’s temporary. Rents tend to rise over time, whereas your fixed mortgage payment does not. If you buy a home now, within a few years your monthly housing payment could be less than your rent would be.
4. Buying a Home is a Great Investment
Given enough time real estate has always gone up, but corrections happen. Very few people buy a home and make a huge profit in a year or two. Owning your own home is great investment, but you must plan on being there for a number of years.
5. You Can Get Everything You Want in Your First Home
It is human nature to want what we want. When we build our wish list we don’t tend to hold back. Our wish list almost always outgrows our budget. Figure out the top four or five things that are most important to you, and be firm on those. Be ready to give up the rest to get what you want most.
6. You Should Buy as Much House as You Can Qualify For
Because we want to get as much as we can, we tend to think of our lender’s limit as our personal budget. But a lender will allow you to commit up to 50 percent of your gross income to your monthly debts. Is that wise? Only you can decide. Don’t let your lender determine your budget. Sit down with your spouse, family or trusted advisors and determine an amount that makes you truly comfortable.
7. You Need to Have 20 Percent Down to Buy a Home
Conforming loans allow you to put as little as 3 percent down. FHA requires 3.5 percent. VA and USDA loans allow for zero down payment. Putting 20 percent down will save you some money on financing costs, but waiting until you have 20 percent saved up could cost you a great deal more in the price of the home.
8. Don’t Allow Too Many Lenders to Check Your Credit Score
“Hard” credit pulls (when you apply for a loan) do lower your score, but if you have multiple pulls for the same type of application, the hit to your score only happens once. Shopping for a loan makes you a smart consumer, not a higher credit risk. So, shop aggressively.
9. You Should Pay Off All Your Debt Before Buying a Home
It might be a good idea to pay off all your debt, but it might not be, depending on your circumstances. If your credit scores are good and you have plenty of income for the loan you need, it might be better to conserve cash and use it for your down payment. Your mortgage advisor should be able to guide you on this.
10. You Must Be in Your Job for Two Years
You must demonstrate that you can consistently earn the income you need to qualify. This requires two years of continuous employment in your field for salaried employees, not two years in your current job. If you are self-employed or earn bonus income, this myth could be true.
Don’t let home buying myths stop you! When it is the right time in your life to buy, it’s time to buy. Do your homework, consult with experts and go shopping!