Home buying myths are rampant. If you listen to these, you might feel it's impossible to purchase a home, or that you "should" buy a home. But in the end, you have to make a decision that's right for you. Whether you decide to buy or continue renting, it's important that you distinguish home buying facts from myths. Here are seven home buying myths you shouldn't necessarily believe.
1. It's a Great Investment
Home buying myths we constantly hear -- it's a great investment. And yes, it can be. But this isn't always the case. This myth compels many to jump into home ownership because they feel buying a home can provide long-term financial security. But the truth is, homes can depreciate in value, and sometimes, you end up selling a house for less than you paid. It all depends on the real estate market in your local area.
2. It's Better than Renting
Whether buying is better than renting really depends on each person's needs. Some people want stability and prefer staying in the same place for 10, 15 or more years. But if you need flexibility, renting might be a better option. It takes time to sell a house; and if you bounce around because of work or personal preference, getting into a long-term commitment such as a mortgage may not be the wisest choice.
3. It's Cheaper than Renting
Again, it all depends on where you live. In some parts of the country, buying is cheaper. But in other parts, it's much cheaper to rent a house. If you're concerned with keeping your house payments as low as possible, research and compare prices for rentals and home sales in your area. When determining whether a house purchase is cheaper, don't forget to calculate for insurances, taxes and private mortgage insurance.
4. You Need Perfect Credit
Then again, maybe you're eager to purchase but feel you can't because of bad credit. Conventional mortgage lenders typically require credit scores in the 700 range. But if you apply for an FHA home loan, you can get approved with a score as low as 620. Of course, you need to provide proof of income and the house payment can be no more than 30% of your gross monthly income. Also, your credit report must show that you're slowly improving your credit history. You can have no more than two 30-day late payments in the past 24 months.
5. You Need a 20% down Payment
A 20% down payment eliminates private mortgage insurance, but nowadays, most lenders only require a down payment between 3.5% and 5%. Relaxed requirements put home ownership within reach, especially for young people looking to purchase their first place.
6. Fixed-rate Mortgages Are the Best
Fixed-mortgages have interest rates that remain the same for the duration of the home loan. Therefore, your mortgage payment never increases, which offers stability and predictability. But an adjustable rate might be better depending on your circumstances. With an adjustable-rate mortgage, you'll get a fixed-rate for the first one to three years, then your interest rate resets every year depending on the market. Adjustable mortgages are risky because interest rates can go up or down, which causes fluctuations in monthly payments. But if you're only planning to live in a house for two or three years, and you plan to sell before your first rate adjustment, an adjustable-rate mortgage can result in a lower initial rate and payment.
7. You Don't Need an Agent
Technically, you don't need an agent when buying a house. But if you don't have real estate experience, it's smart to have your own representation. The seller's agent isn't going to look out for your best interest. He or she might answer some of your questions. But at the end of the day, agents are there to represent their clients, not you. Therefore, you need to get your own agent to make sure you're not getting the short end of the deal.
Getting to the bottom of common home buying myths can help you decide whether to rent or purchase. What are other common myths about home buying?