Buying a home is one of the biggest financial decisions you will make, and you’ll likely need to do a lot of planning and research before you take the leap. But don’t get snagged by misconceptions. Mortgage expert Tim Manni busts these six common real estate myths to help you find — and afford — your first home.
Myth #1: You need a 20% down payment
While it used to be standard to have 20% of a home’s price as a down payment, saving such a large sum of money may be impractical and could delay your home purchase for years, Manni says.
“Within the last several years, we’re seeing more low down payment programs. It’s a great way to get into the market without having to save a ton of money,” Manni says.
According to the National Association of Realtors, 60% of first-time home buyers put 6% or less toward a downpayment. But Manni cautions home buyers: Just because you can, doesn’t mean you should.
“If you limit yourself to just saving a couple percent of that loan amount, you’re going to be strapped for cash when it comes time for closing costs or when it comes time to furnish the home that you’re living in,” Manni says.
While there are benefits to putting down 20%, including lower monthly payments and a lower interest rate, knowing what you can afford takes research and a close look at your finances.
“This is something that each and every person has to do on their own — crunch the numbers to see what works well for them,” Manni says.
Myth #2: Your credit score is “good enough” to buy a home
“Believing that your credit score is just good enough is a myth,” Manni says. “The higher your score can be, the more money you’ll save in the long run.”
Manni says your credit score is extremely important when it comes to buying a home because your lender will see that you can pay off your bills and give you a better interest rate, making your mortgage more affordable.
If you have bad credit, don’t think you can never buy a home. Take the time to build your score by paying your bills on time every month and never miss or make late payments on any of your expenditures.
“So many of your financials are under the microscope and maybe none more so than your credit score,” Manni says.
Myth #3: Loan pre-approval determines your price range
Mortgage pre-approval means that your bank or lender has looked at your credit history and determined what size mortgage you would be able to pay. But Manni cautions this doesn’t necessarily mean that’s what you can actually afford.
Lenders look at your core financials — such as your salary, bills and debts — but don’t consider lifestyle choices that could affect how much money you can actually spend on a home.
“You’re going to need to give yourself a cushion, so a huge piece of advice I offer to all homebuyers is to never max out your affordability,” Manni says.
Myth #4: Once I make the offer, the hard work is done
If you’ve managed to find a home and make an offer, you may think the rest will be smooth sailing. But Manni says the hard work has only just begun.
“There’s the home inspection, the pest inspection. When I bought my home, there was a chimney inspection,” Manni says. “If you see things in your home inspection you’d like the seller to address, that’s going to lead to more negotiations.”
Your seller might have a different timeline or have expectations that differ from your own, Manni cautions.
Myth #5: Your home purchase is non-negotiable
Manni advises home buyers to realize that everything is negotiable. “There are a lot of cards on the table,” he says. “That could be repairs [for the home], that could be paying for closing costs.”
Manni says buyers should consider asking the seller to pay for closing costs, because it could reduce the price of your home by thousands of dollars. Closing costs are fees in addition to the price of your home, and include things like appraisal fees, lawyer fees or credit report charges.
“That’s a chunk of change right out of your pocket that doesn’t have to be spent on your home; that’s money you can keep saving,” Manni says.
Myth #6: You bought “the perfect home”
According to a survey by Nerdwallet, 49% of homebuyers had regrets about their home-buying process.
“There are regrets that you can live with and there are regrets that you really want to avoid,” Manni says. “It’s completely normal to regret not having enough space, but you don’t want to regret things like your mortgage or interest rate.”
Manni encourages homebuyers to do their research on home location and take the time to know your mortgage options to avoid feeling stuck down the line.
“Your dream home is not going to be ready and waiting for you — you’re going to have to look,” Manni says.