If you’re thinking about buying a home, you’ve probably received your share of advice from family and friends. Add to that the constant stream of TV shows, news segments, and social media posts that over-simplify the home buying process for easy entertainment.
With so much information to sift through, it can be tough to distinguish fact from fiction. That’s why we’re revealing the truth behind some of the most common home buyer myths and misconceptions.
Buying a home is a big decision, but it doesn’t have to be a scary one. If you arm yourself with knowledge and a qualified team of support professionals, you’ll be well equipped to make the right choices for your family and financial future.
DON’T FALL FOR THESE COMMON HOME BUYER MYTHS
Myth #1: You need a 20% down payment.
Plenty of buyers are purchasing homes with down payments that are much less than 20% of the total cost of the property. Today, you can quite easily buy a home with 5% down, or in some cases even as low as 0% down.*
There are several programs out there that allow you to have a lower down payment, and we would be happy to talk you through which option is the best for you prior to you meeting with a mortgage broker or lender. Since you’re putting less money down, you’re deemed to be a riskier borrower to your lender than people who put down a full 20%, so you will most likely need to pay a mortgage insurance fee as part of your monthly payment. But in the grand scheme of things that's a small price to pay for getting into the market sooner, rather than waiting.
Myth #2: Real estate agents are expensive.
Many agents are seasoned professionals, and all agents have a fiduciary responsibility to act in their client's best interests. Add to this the specialized knowledge they bring, as well as the hours of conscientous effort they expend on your behalf throughout your home buying journey. It would seem like having an agent is expensive, right? Well, not really. It's actually one of the best bargains available. That's because buyers usually don’t pay a real estate agent’s commission. Rather, your agent’s fee is paid for at closing by the seller of the home you’re buying. The seller knows to factor this cost into the property’s total purchase price.
Myth #3: Don’t call a real estate agent until you're ready to buy.
The earlier you bring in an agent to help with the purchasing process, the better. Even if you’re in the very early stages of casually browsing Realtor.ca, a real estate professional can be a huge help.
They can create a specific customized search for you in the Multiple Listing Service (MLS), so you get notifications for every house that meets your criteria as soon as it hits the market. The MLS is typically more up-to-date than other home search providers. And even when its not, we at Home and Property Real Estate can set you up on additional searches for exclusive listings, powers of sale, FSBO's (For Sale By Owner properties) as well as other avenues for searching out your most desired property. Setting up a single MLS search as well as multiple unique searches through our proprietary systems a few months before you’re considering buying gives you a good idea of what’s out there in your town that’s in your budget. Reviewing the MLS and speaking with an agent as soon as possible can help you set realistic expectations for when you actually start the house hunting process.
Myth #4: Fixer-uppers are more budget friendly.
We’ve all watched the shows on HGTV that encourage people to go after fixer-uppers because they’re more affordable and allow buyers to eventually renovate the home to include everything on their wishlist. But, this isn’t always the case.
Sometimes, homes that need a lot of work also require a lot of money. And sometimes they're simply not worth it. Big renovations, like add-ons, a total kitchen remodel, or installing a pool, take a lot longer than it looks on TV. If you’re really interested in a fixer-upper, ask your agent to show you a mix of newer homes and older homes. If you fall in love with an older home that needs a lot of work, we can arrange some quotes from contractors before you buy so you will know the real cost of the renovations and get an understanding as to whether or not you can realistically work them into your budget. We'll also help you identify costly structural and systemic flaws that may make the fixer-upper you are looking at a bad bet; one that you're better off walking away from.
Myth #5: Your only upfront cost is your down payment.
Your down payment is big, but it isn’t the only money you’ll spend during the home buying process. At closing, you’ll pay your down payment, but you’ll also bring closing costs to the table. Closing costs are typically anywhere from 2-4% of the total purchase price of the home. This amount includes the cost for items like homeowners insurance, land transfer fees, and more.
We also often recommend that you pay for an inspection before closing, which usually costs a few hundred dollars. This price will be higher or lower based on the size of your new property. Your lender will also require an appraisal. An appraiser will come in and inspect the home to determine how much it’s worth. Depending on your lender, you may have to pay this when the appraisal is conducted or it might be picked up by the financial institution or rolled into your closing costs.
Myth #6: You need a high credit score to buy a house.
You don’t need perfect credit to buy the perfect home. There are loans out there that buyers with lower credit scores can qualify for. These are good options for people who have had credit issues in the past; though some of them come with additional fees you will need to pay. We can offer you a preliminary understanding of the issues specific to you and your situation, as well as offer some realistic options prior to your meeting with the mortgage broker or lender of your choice.
Myth #7: You can't qualify for a mortgage if you're still paying off student loans.
While some buyers may feel more comfortable paying off their existing debts before taking the leap into homeownership, it’s not a requirement. When you’re applying for a mortgage, the lender takes a close look at your debt-to-income ratio. If you want to calculate this on your own, add up all of your monthly debt payments and divide those by your monthly income. When you’re lender does this, they’re trying to make sure that you will be able to afford your monthly mortgage payments along with your other existing payments. If your income is high enough to allow you to make all of these payments each month, having a student loan will most likely not stop you from getting a mortgage.
Myth #8: You should base your budget on what your lender approves.
How much house you qualify for and how much you can afford are two totally different numbers. When you prequalify for a mortgage, your lender will look at your income, debt, assets, credit score, and financial history to determine how much money you might qualify for.4 For some people, this number might be much higher than you thought because lenders tend to approve for the highest amount they think you can afford. But that doesn’t mean that’s how much you should borrow.
Instead, figure out how much house you can actually afford. An online mortgage calculator can be a good first step in determining this number. We recommend thinking about what you want your monthly payment to be as a starting point. And remember to include your principal, interest, taxes, and, insurance. You should also think about ownership expenses that aren’t part of your monthly payment, like utility payments and maintenance.
Myth #9: It's all about location.
You’ve heard the phrase. Location, location, location is basically the real estate industry’s motto, but we’ll let you in on a little known secret: It’s not always true. Yes, location is great to consider when it comes to school districts and commute times, but you also need to think about how the home will function for you and/or your family’s lifestyle. If a family of five is choosing between a one bedroom condo in the bustling city center and a 4-bedroom home out in the suburbs, the latter is probably the best, most functional choice for them. Also, by buying in one municipality as opposed to another can make a significant difference on property taxes.
Obviously, you might still want to choose an area with great resale potential, and this is something that your agent can speak to you about. They should be well versed on the various aspects of home ownership in your city or neighbourhood, and are constantly monitoring buying and selling trends.
Myth #10: If you look hard enough, you'll find a home that checks every box on your wishlist.
You’ve seen that famous house hunting show. And while we have our suspicions about how real it is, the one thing they get right is that almost every buyer needs to compromise on something. Yes, the perfect house that meets every item on your wishlist is probably out there, but it’s also probably double or triple your budget.
A long wishlist can be a great starting point for figuring out what you want and don’t want, but we recommend narrowing that wishlist down to the top five things that are important to you in order of priority. We also recommend noting on your wishlist what your absolute deal breakers are, like “must have a yard for our dog,” and noting what you can live without, like “heated bathroom floors.”
This is a great list to discuss when you first start talking to an agent. A good real estate agent will be able to look at your list and find properties that might work for you. By coming to that first meeting with realistic expectations and knowledge about home buying rather than a bunch of myths heard here and there, you’ll be able to start the process off on the right foot and be in your new house in a time frame that is perfect for you and your loved one(s).
WE’RE HERE TO HELP
Whether you’re a first-time buyer or a seasoned homeowner, there’s no reason to go through the home buying process without an advocate on your side. We’re here to answer your questions and do much of the heavy lifting for you, so you can spend your time dreaming about your new home. Call us today to schedule a free, no-obligation consultation.
Get a FREE copy of our Home Buyer’s Guide to Getting Mortgage Ready
Now that we’ve cleared up these common homebuyer myths, find out if you know the steps you should take to prepare financially before you apply for a mortgage. Contact us to request a complimentary copy of our “Home Buyer’s Guide to Getting Mortgage Ready.”