Dispelling 10 Common Homebuying Myths

There’s a lot of information floating around when it comes to buying a home – one of your biggest purchases! Whether you’re a first-time buyer or you need a refresher on homebuying facts, we’ve put together a list of common myths to dismiss. Find out the truth about each of these myths:

Myth 1: It’s cheaper to rent than own. 
Renting may be cheaper in the short term, but it doesn’t build your wealth. While your rent may increase every year, a mortgage payment won’t.  Another long-term benefit may come when you move – your home will likely be worth more in the future, so when you sell, you’ll have more money for a larger house or moving expenses. Or if you stay in your home, once your mortgage is paid off, you’ll have more money each month since your housing expenses will drop drastically.

Myth 2: You don’t need to get prequalified by a lender.
Even if you’ve figured out your homebuying budget, it’s still smart to get prequalified by a lender! Many real estate agents won’t let you make an offer on a house without getting prequalified, and it makes the overall process a lot smoother. Plus, you’ll be reassured that your budget is realistic, and you’ll know exactly what price range you should be shopping in. 

Myth 3: You can’t get approved for a mortgage if you have a lot of debt.
One of the biggest factors in your approval for a mortgage is your debt-to-income ratio (DTI). DTI affects the loan amount you’re eligible for and the interest rate you’re offered. In general, your housing costs should be less than 28% of your gross income and your total debt payments should be less than 36%. The key is to balance your savings, DTI and credit score to become approved!

Myth 4: You can borrow money for your down payment.
Since more money down means lower monthly payments, should you borrow money to increase your down payment? This isn’t a smart move – it increases your DTI (explained above) and could cause you to lose your approval. If you’re receiving money from family, they can gift it to you – just make sure you have documentation that it’s a gift and not a loan. 

Myth 5: You should take out the biggest mortgage you can.
When you look at your finances, think about what your life will be like over the years you’re paying your mortgage. For example, if you plan on having children, leave some wiggle room in your budget to account for those new expenses. If you’re confident that your financial situation will stay the same or improve, then borrowing the maximum mortgage amount is appropriate. You can get a rough idea of how much you can afford by using our mortgage calculators. 

Myth 6: You need a 20% down payment.
Putting down 20% is ideal, but not necessary. DECU offers first-time homebuyer mortgages with as little as 3% down. However, you may need to pay for Private Mortgage Insurance (PMI). This adds an additional monthly fee to your mortgage to protect your lender in case you default on your loan. Try our Home Buyer Savings Calculator to see how your monthly payment would differ depending on how much you put down on your home. 

Myth 7: The down payment is the only money you need saved.
Don’t forget about closing costs! Not only will you need money set aside for your down payment, but you’ll also need between 2-5% of your home’s purchase price saved for closing costs. These expenses cover required services and fees such as home appraisal, state fees, title search and more. Always keep this separate from your savings so you have funds set aside for any unexpected events!

Myth 8: Interest rates are dropping, so wait for a better rate.
Interest rates rise and fall, so if you can afford to buy a home, don’t wait for rates to fall. You may miss out on your dream home, home prices could increase or rates may never go down. Make the homebuying decision based on your budget and focus on your DTI and credit score instead.

Myth 9: A home inspection is mandatory.
Home inspections are optional. The FHA requires an appraisal, but an inspection is up to you. That said, an inspection is often helpful – you’ll know the condition of the property and if pricey fixes are needed, you may be able to negotiate with the seller.  

Myth 10: Newly built homes are maintenance-free.
While a newly built home may not require any immediate repairs, all homes need to be maintained. Always consider if the higher price of a brand-new house is worth it or if you’d rather save money on your mortgage by buying an older home and making fixes as needed.

Do you have more questions? Check out our Home Buyers Guide or mortgage application checklist, or contact us today!