20 Super-Crazy Real Estate Myths That Don’t Add UpDan StoutWhen it comes to owning, buying or selling real estate, sometimes it seems hard to tell the myths from reality. There is so much bad
20 Super-Crazy Real Estate Myths That Don’t Add Up
When it comes to owning, buying or selling real estate, sometimes it seems hard to tell the myths from reality. There is so much bad advice floating around, and even the good advice doesn’t always apply to every location or type of home. Even worse, since everybody has had some connection to a home or apartment, it seems like everyone you meet has an opinion about real estate—whether they’re qualified or not. But don’t lose hope! Collected here are 20 real estate-related misperceptions that you can safely set aside.
Myth: You Need a Ton of Cash to Buy a Home
There once was a time when you needed a 20% down payment to even consider buying a home. And it’s still a great way to avoid private mortgage insurance (PMI). But today, if you want to lock down a good rate, you’re be able to do so with as little as 5% or 10% down. The 20% tradition is a hold-over from decades ago. Let go of that and other myths, and you’ll find a whole new world of options opening up for you.
Myth: All You Need is a Down Payment
But just because you need less up-front than home buyers of yesteryear, it doesn’t mean that you should start home shopping with no savings! You may be able to get the seller to carry closing costs, but there’s no guarantee that will be the case. Further, you’re almost guaranteed to run into expenses with your new home. Repairs, improvements, moving expenses—all of these and more mean that you should have money set aside when you move in. Experts normally suggest around $3,000, but the exact amount will vary with your specific situation.
Myth: A Scary Basement Should Scare you Off
Like many myths, this one holds a seed of truth. A serious foundation issue can be a large and expensive project to tackle. However, many potential home buyers see a basement as dark, damp and crawling with bugs, whether or not there’s actually a serious problem. But there’s a major difference between serious issues and minor moisture problems.
If in doubt, get a second opinion—this is one of the reasons a Home Inspector is so valuable—and then put together a plan. Once you have a tentative timeline and budget, then you can make an informed decision about whether that home, and basement, is right for you.
Myth: School District is Irrelevant to Those Without Kids
It’s a fact: homes in more desirable school districts cost more. This means that even if you don’t have children, when it comes time to sell your home, you’ll be in a stronger position if you’re in a good school district. So don’t buy the myths that schools, parks and rec centers only impact those who use them.
Myth: Owning a Home is Like Minting Money
One of the more persistent myths when it comes to home ownership is the idea that buying a home is a guaranteed positive investment. While it’s certainly true that home values tend to increase, that is not always the case. Further, some studies show that depending on where you live, you may be better off renting, and putting the money you save into an investment account.
The caveat is that it requires you to have the discipline (and luck) to be able to consistently set aside that gap between rent and mortgage costs. Paying against the mortgage is like having a forced savings account, and that wealth slowly but steadily builds up over time. It’s a great way to set aside savings, but that should never be the primary reason to buy a home. And of course, if you can find a few extra dollars, you can still invest.
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Myth: It’s Your House, You Can Do What You Want!
Most of us like to think that when we own a home we can do whatever we want with it. The reality is that we have to take into account municipal regulations as well as any homeowners association requirements. Zoning and permits vary greatly from area to area, and every homeowners association is an entity unto itself. But no matter where you live, it’s a fact that some home improvements will improve the market value of your home, while others will have no effect, or might even make it harder when it’s time to sell.
So feel free to go with orange and brown vintage wallpaper if that’s the look you enjoy; just understand that potential buyers might not feel the same way about it as you do!
Myth: Drop Your Insurance After Your Mortgage is Paid
Most mortgages require specific amounts of insurance to be carried by homeowners. It’s certainly aggravating to be required to spend money, but mortgage companies don’t do it just to be irritating. They require insurance because a home is a terribly expensive thing to replace. Far too many homeowners finally managed to pay off their mortgage and owned their home free and clear bilaterally to suffer a tragedy due to fire or natural disaster. Their loss is compounded when it’s discovered that they dropped their homeowners’ insurance once they were no longer required to have it.
Insurance payments may feel like money going out the door, but that’s only when you don’t need it. And when you do? Well, then it’s too late.
Myth: You Need Perfect Credit to Buy a Home
The reality is that while a higher credit score generally allows for a more favorable interest rate, it doesn’t mean that poor credit is an insurmountable hurdle. There are many options available for buyers of all incomes and credit tiers. Talk to your lender and if you hear “no,” keep looking! It may take some research and some time to build up the credit or cash reserves you need, but sooner or later you’ll find the perfect match for your unique situation.
Myth: Your Mortgage Payment is Your Only Expense
Far too many homeowners neglect to consider the holding costs involved in owning and maintaining a home. Most people think they’re accustomed to accounting for utilities in their budget, but they may forget about trash collection and water, which landlords often cover. There are also ongoing repairs and expenses that come with being a homeowner, and those may take new buyers by surprise.
Like many of the myths on this list, the best approach is to be as informed as possible. Actively question your home inspector or other construction and maintenance pros about what kind of repairs and maintenance you should expect, and budget accordingly.
Myth: You can Afford any Home if the Payments are Less than 36% of your Income
The old guideline about matching the principal, interest, taxes and insurance (PITI) to 36% of your income is a benchmark that lenders use when first analyzing a potential mortgage. Like most myths, there is a nugget of truth in this one. The 36% guideline is still used by lenders, because they don’t have to consider the whole picture. But of course, the big picture is exactly what you have to be concerned with!
Instead, sit down and track your spending for at least two months to get a feel for what your real budget is. You don’t have to delay the house hunting process, just keep your eye on your spending, watching for any red flags. If owning a home is a big enough goal, it may even inspire you to trim spending in other areas.
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The steps to buy a house might seem complicated at first—particularly if you're a first-time home buyer dipping a toe into real estate for the very first time. Between mortgage rates,
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