Most Common Home Buying Myths

Whether you’re a first-time homebuyer, a growing family looking for more space, or empty-nesters hoping to downsize, buying a house in Sioux Falls can be a daunting task. It’s one of the biggest purchases you will ever make and between your friends and family, TV shows, social media, and the Internet, you may be overwhelmed with homebuyer advice. But how do you determine what is trustworthy advice and what isn’t?

Lucky for you, Amy Stockberger Real Estate (ASRE) is here to separate fact from fiction with a list of the most common home-buying myths in order to clear up any misconceptions and help you make an educated decision.

Homebuyer Myth #1:
Renting is always cheaper than buying.

Not necessarily. There are benefits to both buying and renting. The main question you have to ask yourself is this: Does buying a home make sense for my current living situation? Nearly anyone who is renting right now is aware that rates have increased. In fact, your monthly rent could be as much as a mortgage payment. As we’ve discussed, there will always be upfront costs when buying a house, but if you plan on staying in the same place for at least five years (give or take), buying rather than renting may save you a significant amount of money.

Homebuyer Myth #2:
You need a high credit score to buy a home.

It’s true that having a poor credit score can increase your down payment and interest rate; however, homebuyers also have more options than ever if their credit is less than perfect. While most lenders need a credit score of 620 or higher, FHA loans only require a score of approximately 580 (or sometimes lower). Keep in mind that credit isn’t the end all be all for lenders, as they can also take into account things like your rent and bills, provided you pay them on time.

Homebuyer Myth #3:
Your down payment must be at least 20 percent.

Perhaps the most common home buying myth out there today, it’s widely assumed you need a 20-percent down payment to buy a house. Nope! Although putting down 20 percent (or more) is ideal, there are various loan options that require much less money, including FHA loans at roughly 3.5% and VA loans for veterans, military service members, and eligible spouses that may not require a down payment at all (for those who qualify). Just remember, if your down payment is less than 20 percent you could be required to pay extra for mortgage insurance.

Homebuyer Myth #4:
Your only upfront cost is the down payment.

In addition to the down payment, homebuyers will need to pay closing costs. What are closing costs? These are the products and services related to your mortgage transaction and they usually range from two to five percent of the house’s purchase price. You might be able to add these closing costs to your total mortgage amount, but that also means you will have to borrow more money and pay more interest on that larger loan. And don’t forget about further down the road! While saving up for a house, make sure you budget for furniture, appliances, repairs, and improvements.

Homebuyer Myth #5:
You should buy a house equal to the amount approved by your lender.

Have you ever heard of the phrase “house poor?” According to your financial institution, you may be able to afford a $600,000 house, but that doesn’t mean you should do it. Lenders partly base their decisions on a debt-to-income ratio and though it’s nice to have the flexibility of being approved for a larger amount, it’s important to consider all potential homeowner bills, future family plans, and lifestyle expenses. You don’t want to overextend yourself on a nice, new home, only to pinch pennies in every other aspect of your life. Instead, create a detailed budget upfront and think about a monthly house payment you’d be comfortable with.

Homebuyer Myth #6:
Always choose the mortgage lender with the lowest starting interest rate.

When buying a home, money will undoubtedly be a significant factor in most decisions, but it’s important that it not be the only thing you look at. Just because a financial institution may have a low, starting interest rate doesn’t necessarily equate to a lower, long-term payment. For instance, an adjustable-rate mortgage (ARM) will usually have a lower rate to start, as opposed to a fixed-rate mortgage. However, the interest rate on an ARM will reset from time to time, which could increase your rates and make your payments higher. Also, consider who is offering a lower starting interest rate. Not only can a less-than-reputable lender cause you to lose out to competing offers, but it’s also easier for a real estate agent to work with an established financial institution.

Homebuyer Myth #7:
It’s more budget-friendly to buy a fixer-upper.

If you’re the creative type that enjoys watching the hundreds of home improvement shows currently on TV, the low price of a fixer-upper could be tempting. However, here are some things that could come into play during a home renovation:

  • How much of the work will you be doing yourself?
  • Do you have enough money budgeted for a home renovation?
  • Do you have the time?
  • Are you aware of the building codes and zoning laws in your neighborhood?

A fixer-upper might seem like an affordable way to get your dream home, but you could just as easily find yourself in that episode of your favorite home improvement show where the homebuyer unknowingly purchases a house with a bad foundation, dilapidated roof, or mold damage.

Homebuyer Myth #8:
Make sure you get your dream house.

Just like home improvement TV shows, there is also no shortage of shows that document the house-hunting process. While we can all question how authentic these episodes actually are, one aspect is very real: you will have to compromise. In a perfect world, every homebuyer would get their dream house. Unfortunately, in real life, most of us will have to make a few concessions—and that’s okay! It’s perfectly fine to start with a long wishlist, but your ability to prioritize will be your best ally during the home-buying process. Plus, a shorter list of realistic must-haves will only make things easier when it comes time to meet with a real estate agent.

Homebuyer Myth #9:
You don’t need a home inspection.

Whether you’re buying a new home in Sioux Falls or an older house, don’t try to bypass the home inspection! If you’re financing a house, chances are your lender will require one, but this is an important step in the home-buying process. Not only will a home inspection help you understand how much your house is worth, but it can also expose any problems or repairs that would increase the home’s selling price.

Homebuyer Myth #10:
Don’t contact a real estate agent until you’re ready to buy.

As we stated above, you probably shouldn't hold out for your dream home, but working with a real estate team will increase your odds of getting those items on your wishlist and it’s NEVER too early to begin the process. Professionals like Amy Stockberger Real Estate (ASRE) have an unrivaled knowledge of Sioux Falls and its surrounding communities, and tools such as the Multiple Listing Service (MLS) will alert them to any new, available houses in your search area. Plus, our real estate team is with you every step of the way, providing valuable information, answering questions, and helping negotiate offers. Call our offices today at (605) 340-1933 because it’s never too early to start searching for your next, new home.