If you’ve told your friends and family that you’re interested in buying a house, you’ve probably been on the receiving end of mass amounts of advice. Today, it seems like everyone has a perspective on the real estate market, but not every bit of information you hear is true. To help you disseminate what to believe and what not to believe, we’re going to bust some long-held buying myths.
Court Case #1: You Need a 20% Down Payment to Buy a House
The Defense: If you don’t have the finances to put down 20% on the house you want, then you can’t afford it.
Prosecution: Not all mortgage loans require 20% down payment. This idea spurred from the housing collapse when mortgage lenders were more closely examined by government officials. Realistically, some mortgage loans like FHA loans for first-time buyers only require a 3.5% down payment. VA loans don’t require anything. However, it’s also important to note, the more you put down initially, the more it saves you on paying interest. If you put down less than 20%, you will have to pay private mortgage insurance (PMI).
Verdict: You’re not required to put down 20%. The catch-22 is that you will have to pay private mortgage insurance.
Court Case #2: A 30-year Mortgage is the Best Deal
The Defense: 30-year mortgage loans offer the most affordable monthly payments for most buyers, so it’s the best deal on the market.
Prosecution: Depending on mortgage interest rates and your current financial capabilities, a 30-year loan is not always the best option. 15-year mortgage loans typically offer lower interest rates than 30-year loans – making this a better option in the long run. You will save thousands of dollars in paid interest compare to a traditional 30-year loan. The only catch is that your monthly mortgage payment will be higher.
Verdict: 15-year mortgage loans offer better interest rates, saving you more money in the long run – as long as you can afford the monthly payments.
Court Case #3: Renting is Cheaper than Buying
The Defense: Because you don’t own the property, you don’t have to pay high mortgage interest rates or pay for any repairs. The only payment you have is the rent.
Prosecution: In today’s real estate market, owning is typically 35% cheaper than renting. Since the housing collapse and new loan regulations, a lot of people decided to rent versus own first. As a result, this has created a demand in apartments, driving up rents. Subsequently rent prices have risen above the average monthly mortgage payment.
In addition, you are not gaining equity with your rental property. With a house you are, and when you decide to sell, you can use the profits to move up (or to apply towards a retirement fund, etc.). Typically, if you buy and live in a house for more than 5 years, you will be saving money compared to renting.
Verdict: Owning a house can be cheaper than paying a high rent.
The Jury on Home Buying Myths
Buying real estate isn’t something to fear. With the right planning and information, you can set yourself on the right path to owning a house. With any situation, there are circumstances, and you can always consult with your real estate agent about possible solutions. Don’t let these common myths scare you out of buying a house. Owning a home is a rewarding experience that pays off in the long run.