Top 10 Misconceptions to Buying Your First Home
Buying your first home can be overwhelming, intimidating and downright scary. Let’s be honest, when I bought my first home, I felt like my youth was over and I had become an adult. Fortunately or unfortunately, depending on who you ask, that wasn’t the one thing in my life that made that transition take place. However, for me there have been more positives than negatives to that decision. So let’s talk about some misconceptions some people have about buying a home…
- You have to have a 20% downpayment to buy a home. False. There are (as of today) loan programs with 100% financing, that only require 3.5% or 5% down payment, etc. There are many factors that go into required down payments. Some of them are based on you, your credit score, your finances, but also some are dictated on where you are looking, if you are a 1st buyer etc. For instance, if you are Veteran or Active Military, you could probably get a VA loan that can do 100% financing. Or if you are looking for a home in the City of Columbia. They have special programs for certain incomes, in certain areas that can contain little to no down payment.
- When Buying A Home You Have to Have Perfect Credit –False. Very few people have perfect credit. Want to talk about a detailed and confusing system? Try to figure out credit ratings. With that said, credit scores are a great indicator of a buyers ability to make sound financial decisions that they can fulfil, but that’s just a snapshot of a buyer’s ability. So with that said, I have heard of banks lending money to buyers with a 580 credit score. I think a great rule of thumb is a 620 credit score will be the lowest score that won’t affect your interest rate etc. Meaning you might have a higher interest rate the lower credit score. But that is part of our job as REALTORS, to see what your situation is and get you in touch with lenders that have programs that best suit your needs. Just so you know, the majority of buyers we see have credit scores in the 600-700 range.
- I Need to Have a Home Before Talking to A Mortgage Company – False. Would you go out shopping before checking your online banking and knowing how much you have to spend? Heck no. Well that’s sort of the same thing. There is a big difference between a $100k house and a $150k house. It’s always best to talk to the money person before looking at home. Another positive to do this is because they are the architects of the deal. We, REALTORS, don’t ask to see financials when you are buying a home, so we don’t know if you have cash in the bank or not, lenders will. So when you want to offer on a home, we may have to structure the deal so that is a “win-win” for you, and your situation. Think of the lender as the architect of the deal, and REALTORS are the builders. Also don’t worry, we are more than happy to be as much of a part of the lending process as you want; we are happy to go to the appointments with you, etc. I think the more involved REALTORS are in that part, the smoother it will go.
- I Need to Use My Local Bank – Maybe. If you have a local bank that you have a great relationship with, it can work in your favor. But often times if you don’t, it’s probably not going to help you that much. Banks have a few loan programs, and depending on credit, debt to income, down payment amount etc., you fit in one box and maybe not the other, and that’s it. They tend to not be very creative, because they can’t. Unlike traditional banks, private banks or mortgage lenders can take your specific situation and shop it to dozens of lenders to see what is best for you. That way, three lenders may be offering the same product that you fit into, but one may be offering a lower interest rate or a lower down payment. So without boring you out of your mind, we recommend using a private bank or mortgage lender.
- My House is Going to Increase in Value – Possibly. There is a long standing track record of Americans creating wealth through homeownership, and that has been proven correct for more than a century. However, there are windows of time when people didn’t make money, many broke even, and some did lose money. There is no definite answer that you will make money on your home. There are, however, a lot of positives to owning a home such as: lower payments over renting (usually), mortgage interest tax deductions, and the possibility of your home gaining value over your ownership, etc.
- The Asking Price is The Selling Price – Maybe. Of course, what sellers want and what the house is worth can be two different prices, or sometimes they are one in the same. Thats where it takes a good REALTOR to be able to pull comparable homes to show you the true market value of the home.
- I Have To Offer Low to Leave Room for Negotiations – Maybe. This not an easy one to answer. I would always recommend that you look at the comparable sales, then look at where you want to be in terms of payment, and then have a discussion and decide on an offering price. Hitting a seller low without justification can make the seller so mad they may not want to deal with you.
- Sellers Have To or Will Make All Repairs Needed – Doubtful. Unless you are buying a new home, there are probably going to be issues with the house. Chances are that there are probably things wrong with a new house too. Why? Because humans built it. With that said, repair negotiations are just that; negotiations. Now, there will be some things that are required depending on the type of loan you are getting i.e.VA usually won’t allow any flaking paint, or FHA loans may require a clear CL-100/Termite Letter. But other than that, it’s all part of a bigger picture/strategy. If you offer low, expect less. If you offer closer to asking price, expect more. But this isn’t always the truth either. This is where you need a seasoned negotiator to guide you through the in’s and out’s of strategy.
- I Can Look At Houses Whenever I Want – Yes, with enough notice. Most sellers will want some notice to see their home. They may have animals, kids, messy husbands etc. So typically a few hours will get it done. However, you have to realize that REALTORS also have schedules, so we find it best to plan a few hours a few days in advance so that you can see the homes you want at the pace you want. When you try to fit 6 houses in on your lunch break, you can become overwhelmed, underwhelmed and irritated. So, plan to take a day or two off during the week if possible. Why? Because most sellers are at work, and we can have unrestricted access. If we always try to go on weekends, you will have to fight around cook outs, birthday parties, tailgating, animals, out of town guest, etc.
- I Have To Buy A Home – No! Buying a home only works if it works for you and your situation. We often advise people to rent if it is a better fit for their situation. I know, you’re curious why a REALTOR would advise against it? First, it depends on how long you plan to be in Columbia, SC. Right now, if you said “I only want to be in Columbia for 2 years”, I think it’s best to rent, even if you get a great deal on a house. Why? It will be very hard for you to break even on the sale of your home once you factor in REALTOR fees, deed stamps, repairs etc. Obviously the longer you’re in the home, the higher the likelihood that your property value will increase. We aren’t the pushy sales people of yesteryear. We will help look at your situation, your price range, your needs and help walk you through the process of buying a home if you feel that is the route you want to take. And if not, we will be more than happy to direct you to some rentals that might work for you.