Home Buying Myths
A home is the most expensive purchase you’ll likely ever make. New home buyers have a lot to learn and, unfortunately, there is a lot of misinformation out there. Before making the leap, make sure you are educated on these common myths.
1. You Need a 20% Down Payment
It is true that in many cases you will need to pay Private Mortgage Insurance if you put down less than 20%. However, saving for a 20% down payment can be near impossible. To save up for an average-priced home in Portland, a current renter would need to save for over a decade.*
The good news is that there are options. Rivermark offers 100% financing options that don't require Mortgage Insurance. Just don’t forget other costs like closing costs, finance fees, taxes and inspection fees.
2. Look for a House Before Securing Financing
It could be tempting to look for a house as soon as you know you want to be a homeowner. But, you should get pre-qualified from a lender first. You may end up looking at homes you can’t actually afford and get your heart broken when the sale falls through. Give our mortgage team a call and they can walk you through the process.
Tip: Make sure your credit is in great shape before you start the financing process.
3. Interest Rate and APR are the Same Thing
While both your interest rate and APR are percentages, what they represent is different. The interest rate is how much you pay each year just for borrowing the money. It is what is used to calculate your down payment.
The APR includes all the costs involved in financing the loan, including fees and finance charges. It is intended to give you a better idea of what you will be paying. It is usually higher than the interest rate.
Knowing this important distinction will help you make important decisions when shopping for the right rate.
4. Home Ownership has Enormous Tax Benefits
If the only reason you are considering purchasing a home is because of the tax benefits, you should reconsider. Yes, you can write off the interest you pay on your loan as a tax deduction. However, it would need to top the standard deduction and you would need to itemize every qualifying expense. Oftentimes the amount is less than the standard, meaning it would not qualify as a deduction.
See your tax advisor ahead of time to see if this is a benefit that would impact you. In the end, you may not be saving as much as you’re paying in interest on the loan.
5. It is Always Better to Own Than to Rent
The idea of “renting is throwing money away” is a thing of the past. Whether you should rent or buy is very situational and depends on a number of factors.
First, homeowners face many expenses that renters do not. Things happen. Roofs need to be replaced, water heaters break and dishwashers flood. Because of this, renter’s insurance tends to be much cheaper than home owner’s insurance. HOA fees are an often-overlooked part of homeownership and should be considered when making a decision.
There are opportunity costs with homeownership as well. You have less flexibility to move if you switch jobs or need to suddenly relocate. You also are responsible for the complete maintenance of your home, including tending to the lawn, spraying for insects, plumbing, etc and those things could take a lot of your time and energy.
For benefits of renting versus buying, check out this article. You can also consult with a financial counselor to go over your options.
6. You Need a 700+ Credit Score
While it is true your credit score often plays an essential role in getting a mortgage loan approval, it is only one of several factors. Moreover, with the availability of federally insured mortgages like an FHA (Federal Housing Administration) loan or a VA (Veterans Administration) loan, you do not need a perfect credit score to qualify. However, the higher your score the better your rate, so it is important to weigh the cost of moving forward now or waiting until your score improves.
7. It's Not the Right Time to Buy
It is likely you know someone who has made money on a home purchase or even a house flip recently. Buying a home is not the kind of investment where you should expect a quick or substantial return. Although there is an opportunity for equity building and appreciation in some markets, a home purchase should be considered a long-term investment. There is no magic in timing interest rates or the real estate market. The number one factor in determining when is the right time to buy is your ability to purchase without getting in over your head. Ultimately, the best approach is to buy a home when you are ready.
8. If You Get Denied, You are Done
Not all lenders are created equal. If you were denied for a mortgage loan in the past, all hope should not be lost for a home purchase. The important thing to remember here is the best lender will get to know you and understand your financial situation. They will take their time to help you understand why you were denied and make recommendations on how you can improve your qualification in the future. Most importantly, a good lender can help you understand the timeline of when you may be ready to apply again in the future once you have made the necessary adjustments to your financial situation.
And finally, there’s a myth that home buying is harder than you think. It’s not! Our mortgage team would love to hear from you and answer your questions! Contact us at 503.906.9497.