Top 11 Homebuying Myths
If you’ve never purchased a home, you might have been given advice that could steer you in the wrong direction. Here are the top 11 homebuying myths that New Home Inc. needs to debunk.
Myth #1: You need a 20% down payment.
While it’s great to have 20% down payment when you’re preparing to buy a home, it’s not a necessity. There are loan programs that allow you to pay as little as 3.5% or even give no down payment!
Government-backed loans help new homebuyers who don’t have a large down payment. The Federal Housing Authority (FHA) offers home loans with 3.5 percent down payment if your credit score is at least 580. You may qualify for a 10 percent down payment with a credit score of 500 to 579. Both offer low interest rates to make it even more affordable to buy a home.
The U.S Department of Veterans Affairs (VA) provides home loans to veterans, active-duty service members, and surviving spouses with no down payment and a low mortgage interest rate.
The U.S. Department of Agriculture (USDA) home loans also require no down payment for qualified borrowers, and also a competitive interest rate.
For many loans, if you put down less than 20%, you’ll need to purchase private mortgage insurance (PMI). This coverage protects the lender in the event the borrower defaults on the loan. Mortgage insurance is usually included in your monthly mortgage payment. The amount of the premium will depend on several factors, including your credit score, down payment amount, interest rate, loan term, and a few other things. The premium averages between 0.2 and 2 percent of your total loan amount.
You can cancel the PMI when you’ve built 22 percent equity in your home, so it’s a short-term solution to buying a home without a 20 percent down payment. Just check with your lender about the PMI terms to make sure.
Myth #2: Excellent credit is a requirement.
Your credit score impacts your homebuying power. The higher the score, the more likely you’ll be approved and at a competitive interest rate. What is a good credit score to buy a house? In addition to the government loans mentioned above, you may qualify for a conventional loan with a credit score of 650. But applicants who present scores in the 700s get even better loan options!
As you’re planning the path to home ownership, check your credit report. If you need to do some work there, you can achieve results by paying down your debts and making on-time payments. You’d be surprised how quickly you can improve your credit score with a little effort.
Myth #3: Wait for a buyer’s market.
Are people telling you that now is not the time to buy a home? That’s definitely one of the top 11 homebuying myths! The right time to buy a new home is when you’re financially and emotionally prepared to take on the responsibility.
One thing you can count on is that home prices will rise. If you wait for rates to drop, you’ll be getting a lower interest rate, but financing a higher loan amount. Remember, you can always refinance your home if the interest rates drop significantly below the rate you get for your mortgage.
You can also look into the option of a rate buydown. You purchase discount points to be applied at closing for the difference to lower your interest rate. You can use a rate buydown for a short term—like the first year or two of your loan—or a longer period. Some builders will pay the rate buydown for you! New Home Inc. currently offers a rate buydown to help our homebuyers affordably purchase one of our new homes for sale near Raleigh, NC. We pay to lower the rate, so there’s no cost to you.
Myth #4: New construction costs more than existing homes.
This myth is outdated. Itt might have been true some time ago, depending on the home and the location. Buying a new construction home now is not just the better value in the long run, but can also be less expensive to purchase.
As of July 31, 2024, the median price for an existing home in the United States is $422,600. The US Census Bureau reports that the median price for a new home in June 2024 was $417,300. That means you can buy a new home, spend less, and still get more for your money!
With a new construction home, you move into a home that’s fully covered by a warranty. You won’t incur repair or replacement costs. When you buy an existing home, you might need to set aside a budget to pay for remodeling—like redoing the floors, updating the kitchen and bathrooms, and replacing the roof, air conditioning system, or major appliances. Be sure to factor those expenses into your cost to own the home.
Myth #5: Mortgage lenders all offer the same programs.
Just like you shop around to find the right home, you need to do your research before choosing a mortgage lender. You can shop online, go to your bank or credit union, and talk to mortgage brokers who deal with numerous lenders (like insurance agents who represent different carriers). Don’t be discouraged if some lenders turn down your loan request. Every lender has their own criteria, so you just need to keep looking. Ask your Realtor or builder for suggestions.
Myth #6: A 30-year loan is the best choice.
A 30-year, fixed rate mortgage is the most popular choice for homebuyers, but certainly not the only one. Look at your financial situation before making the decision and then consider the various options. A 15-year, fixed rate usually offers a lower interest rate but the monthly payments will be higher because you’re financing the loan amount over a shorter term. But that also means you’ll pay off your loan sooner and gain equity faster.
If you’re not planning to own your home for more than a few years, an adjustable rate mortgage might be a good choice. You’ll have a low introductory interest rate. After that expires, the rate can increase or decrease, depending on current market conditions.
Myth #6: Renting is cheaper than owning a home.
Rent is an expense. You gain nothing from the payment, other than a place to live for a month at a time. When you buy a home, you have an investment. You gain equity as the value of your home increases and you continue to pay your mortgage. Conversely, when you pay rent to your landlord, you’re contributing to their investment and their equity. They pay their mortgage with your rent and keep what’s left over as their own income.
If you choose a fixed rate mortgage, your monthly payment remains the same. Your rent probably goes up every year.
Whether renting is cheaper than buying a home depends on what you’re paying for rent and the purchase price of a home. You’ll probably buy a home that’s larger than the residence you’re renting. The interest rate and down payment will also determine your monthly mortgage rate. It’s worth using a Rent Vs. Buy calculator to see whether renting is cheaper than owning a home.
Myth #7: A fixer-upper is a good way to save money.
This fallacy has frequently led to serious cases of buyer’s remorse. You think you’re getting a great deal on a home that just needs some TLC. Then, you start taking down walls or tearing up floors, only to discover that the work is more complicated than you anticipated. If you’ve ever watched home makeover shows, you know that unwelcome surprises can derail your budget.
Maybe you planned to use your DIY skills to do most or all of the fixes. Do you want to spend evenings and weekends converting your home into what you envisioned? Can you afford the cost as well?
Before you choose to buy a fixer-upper, pay for a thorough home inspection. Get professional estimates on the work you want to get done. Even if you decide to do the work yourself, at least you’ll know what’s involved.
Buying a home that needs work may be a less expensive way to buy a home, but can be much more costly to own it.
Myth #8: You must use the lender who pre-approved you.
The first step to take when you’re ready to shop for homes is to get mortgage pre-approval. This simple step lets you know how much of a home loan you’re likely to qualify for. You speak to a lender and provide a few details:
- Photo identification, like a driver’s license or passport
- Social security number
- Employment information: current job, employer, and how long you’ve worked there
- Copies of recent pay stubs (preferably within the past 30 days) or electronic copies of automatic deposits of your paycheck
- Income tax returns for the past two years
- W-2 forms from the past two years
- Bank name, routing number, and your account numbers
- Investment account statements
- List of monthly debts, including rent or mortgage, credit cards, loans (e.g., car, student)
With this information the lender can tell you as quickly as a day or two if you qualify for a home loan and the amount. You’ll receive a letter that states your pre-approval. Include this letter with any offer you make on a home, because it shows you’re a serious and qualified buyer.
Do you have to stick with this lender when you decide to submit your mortgage application? No. Shop around while you're house-hunting. Talk to different lenders to learn the programs and interest rates they offer. Ask about float-downs, a situation that lets you take advantage of a lower rate if it’s less than the rate you locked in.
If you’re considering a new construction home, ask the builder if they have a preferred lender. Often, a preferred lender offers incentives, like closing cost credits.
You’re making a big investment. Be sure you partner with a lender who is looking after your interests.
Myth #9: Fall and winter are bad times to buy a home.
This myth is completely false! Financial and housing experts—like Kiplinger, Forbes, Zillow, and Ramsey Solutions—agree that fall is a great time to buy a home! Zillow calls early fall “the sweet spot” in the housing market.
While all those buyers who bought into the myth have stopped looking for a home during these seasons, you have less competition. For example families who needed to relocate before school started have already settled in. With less competition, homes stay on the market longer. You’re not as rushed to make an offer as you might be during busier buying seasons. And you have more negotiating room with a motivated seller.
Myth #10: Self-employed people can’t buy a home.
There are currently 9.68 million self-employed people in the United States. Do you think they’re all renting or living with their parents? Don’t be discouraged from buying a home just because you’re an entrepreneur. You need to show your source of consistent income, just like any homebuyer. You’ll provide the past 2 income tax returns and bank statements, which is required of anyone seeking a home loan. In some cases, you’ll need to give the lender a few more documents, like a letter of explanation (LOE) for your sources of income and perhaps letters from clients attesting to the validity of your business. Talk to a lender (or several) about your current financial situation to determine if you can be pre-approved for a mortgage.
Myth #11: You should always go with the lowest interest rate.
A low interest rate is tempting, but take the time to discover if the lender who is offering that rate has additional fees—like origination and application fees—that could drive up your costs. Before choosing a mortgage lender, ask about closing costs, because they could vary from one lender to the next. And get a loan estimate that provides a written detail of everything included.
In addition, some lenders aren’t as reliable or hard-working as others. That could delay your loan approval, which delays the closing as well. Communication is a critical ingredient to a smooth loan and closing process.
Ask your family and friends, including your online network, for their recommendations and experiences.
Happy homebuying near Raleigh, NC!
Now that you have learned the top 11 homebuying myths, put your newfound enlightenment to work with the help of New Home Inc. We’re building beautiful, modern townhomes and single-family homes for sale near Raleigh. Find our communities in popular Raleigh suburbs, including Lillington, Fuquay-Varina, Smithfield, and Willow Spring.
New Home Inc. has developed an innovative, forward-thinking approach to designing and building homes. Our “Future-Proof” homes and floor plans include features you might not even know you really need, like smart automation technology, healthy home and energy efficiency advances, and creative, useful design elements. We build more value into our homes, while making it affordable for you to have an exceptional new construction home that fits your lifestyle and your budget!
Contact New Home Inc.to begin your search for new townhomes and new homes for sale near Raleigh. We have move-in ready homes as well as homesites as large as 2 acres where you can build your dream home.
