When buying your first home, you’ll find there’s never a shortage of free advice. But in a world of so many opinions and instant experts, there are always going to be a few myths floating around to confuse you.
As an experienced agent, I hear many first homebuyers make statements that illustrate they’ve been innocently misled at some point. There’s no malice about it, of course. It’s just that sometimes what has become accepted wisdom is actually inaccurate.
So below, I’ve highlighted six of the most common myths I hear from first-time buyers – and they need to be busted!
Myth 1: 20% Down Payment Required
No. Many lenders offer loans with lower deposit requirements, sometimes as low as 5%. But there is a downside if you can’t make the 20% threshold. The lender will ask you to take out Lenders Mortgage Insurance (LMI). This policy protects them if you default. You have to pay for the policy and it isn’t cheap. Generally, payment comes out of your account automatically at the same time as our mortgage payment. The cost of the policy will diminish how much you’re allowed to borrow.
Myth 2: Pre-Approval Rate is Guaranteed
No. Here’s the thing: when you seek pre-approval the interest rate maybe at 7%. And so the pre-approval is made on this basis. When you come to settle, perhaps three months later, the rate might be at 6.75%. That’s good news for you because it means cheaper mortgage repayments. Alternatively, it could be 7.25%. That’s bad news, but it will be the rate on which your actual loan will be calculated. One reason pre-approvals don’t last forever is because lenders want to minimise this issue.
Myth 3: Wait For Lower Prices.
Folks who tell you to wait until prices fall are fooling themselves and you. You run the risk of never making a purchase, or doing so later when prices are even higher. Unless the economy tanks, property values are historically stable with a solid upward trajectory. Today, the annual value growth is 3.9%. In New York it’s 7.2% – the highest of our major cities. So, don’t kid yourself. And don’t wait. Instead, make your move when your personal and financial circumstances allow you to do so.
Myth 4: Fixer-Uppers Save Money
Fixer-uppers are tempting, but they often require significant renovations with unexpected costs. Rising labor and material costs can make a project untenable. You need to know what you’re doing if this is your strategy. Before a purchase, you should have the building inspected by a contractor who can give you a price on renovations or alterations. And – sorry to say this – expect the unexpected when remodeling.
Myth 5: Take A 30-Year Fixed-Rate Mortgage
Often, too little consideration is given by first homebuyers to the details of their loan agreement. A 30-year deal can be the sweetest deal for you. But maybe it’s not. A lot depends on your circumstances. Consider using a mortgage broker to advise you about fees and penalties that are often associated with specific loans. All lenders and all loans are not the same.
Myth 6: If You’re Self-Employed, You Can’t Get a Mortgage
Not true. However, self-employed individuals often have to jump through more hoops than someone on a salary. Lenders will ask for additional documentation to verify income and profitability, usually over a two-year period. They’ll also assess your exposure to any loans you took out to establish your business.