Top 10 Myths That Trip Up First-Time Home Buyers

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 buy a home with as little as 3-5% down.

There are multiple programs out there that allow you to have a lower down payment, and a lender or mortgage broker can talk you through which option is the best for you. Since you’re putting less money down, you’re a riskier borrower to your lender than people who put down a full 20%. Because of this, you will most likely need to pay mortgage insurance as part of your monthly payment.

Myth #2: Real estate agents are expensive.

Your agent is with you every step of the way throughout your home buying journey, and he or she spends countless hours working on your behalf. It sounds like having an agent is expensive, right? Well, not for you. Buyers usually don’t pay a real estate agent’s commission. Your agent’s fee is paid for at closing by the seller of the home you’re buying.1 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 Zillow, a real estate professional can be a huge help.

They can create a 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 popular home search sites like Zillow and Trulia. Setting up a search 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. 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, get some quotes from contractors before you buy so you know the real cost of the renovations and see if you can work them into your budget.  

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.2 This amount includes the cost for items like homeowners insurance, title fees, and more.

You’ll also need to 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 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, but some of them come with additional fees you will need to pay. Speak to a few local lenders or mortgage brokers to talk through which options might be best for you.

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.3 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 HOA dues 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 a less sought after neighborhood, your property taxes will most likely be much lower!

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’re an expert in your city 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 no time.  

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 the hard work for you, so you can spend your time dreaming about your new home. Call us today to schedule a free, no-obligation consultation.
 
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.”
 

Sources:

1. Realtor.com -

https://www.realtor.com/advice/finance/realtor-fees-closing-costs/

1. The Balance -
   https://www.thebalance.com/buyer-s-closing-costs-1798422

2. StudentLoanHero -

https://studentloanhero.com/featured/student-loans-buying-house/

1. Zillow -

https://www.zillow.com/mortgage-learning/pre-qualification-vs-pre-approval/

Important Steps to Consider for Purchasing a Home

Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. Your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. Here’s a checklist of items you should consider and communicate to your chosen real estate agent.

• Urban, suburban or rural

• Commute time

• School districts

• Desirable neighborhoods

• Proximity to the airport

• Proximity to restaurants and retail

• Access to major highways and thoroughfares

• Access to public transportation

• Health care facilities

• Parks and recreation

• Length of time you plan to live in the home (Your agent should be knowledgeable about growth trends and projections that could affect your investment.)

Buying a home in Scottsdale is a big step for most people so approaching the process with some basic knowledge and the right resources is important. An experienced and knowledgeable buyer’s agent will be your best resource to guide you through the local Scottsdale Real Estate market and assist you with finding the best home at the best price. The guide below is an important tool in the home buying process. The Select Realty Group is happy to provide this guide as a resource for all of our buyers.

One of the first and most important decisions in purchasing a home is deciding where you want to buy. The Phoenix Metro market has a vast offering of housing. Finding the right neighborhood is a must. We offer daily tours of Scottsdale neighborhoods to help buyers find the right neighborhood. Contact us today for more information and to schedule your tour 480-818-5105!

Deciding How Much Home You Can Afford

Your lender decides what you can borrow, but you decide what you can afford.

Lenders are careful, however they make qualification decisions based on averages and formulas. They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs.

Historically, banks use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student loans, and credit card payments, couldn’t be more than 36 percent. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.

Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.

Creating Your Home Wishlist

Before the home search begins, your real estate agent will want to know as much as possible about the features and amenities you desire. To help your agent better serve you, analyze what you want and what you need in a home’s features and amenities.

Features:

• Age: Do you prefer historic properties, or newer ones?

• Style: Do you have a special preference for ranches, bungalows, or another style of construction?

• Bedrooms: How many?

• Bathrooms: How many? Are they updated?

• Living and Dining Areas: A traditional, formal layout, or a more open, contemporary plan?

• Stories: How many?

• Square feet: How much space?

• Ceilings: How high?

• Kitchen: How big? Recently updated? Open to other living areas?

• Storage: Big closets, a shed, an extra-large garage?

• Parking: A garage or carport? Room for how many cars?

• Extras: Attic or basement?

Amenities:

• Office

• Play/exercise room

• Security system

• Sprinkler system

• Workshop/Studio

• In-law suite

• Fireplace

• Pool

• Hot tub

• Sidewalk

• Wooded lot

• Patio, deck, or porch

• Laundry room

8 Steps To Selling Your Home

1. Define your needs.

Write down all the reasons for selling your home. Ask yourself, “Why do I want to sell and what do I expect to accomplish with the sale?” For example, a growing family may prompt your need for a larger home, or a job opportunity in another city may necessitate a move. For your goals, write down if you’d like to sell your house within a certain time frame or make a particular profit margin. Work with your real estate agent to map out the best path to achieve your objectives and set a realistic time frame for the sale.

2. Name your price.

Your next objective should be to determine the best possible selling price for your house. Setting a fair asking price from the outset will generate the most activity from other real estate agents and buyers. You will need to take into account the condition of your home, what comparable homes in your neighborhood are selling for, and state of the overall market in your area. It’s often difficult to remain unbiased when putting a price on your home, so your real estate agent’s expertise is invaluable at this step. Your agent will know what comparable homes are selling for in your neighborhood and the average time those homes are sitting on the market. If you want a truly objective opinion about the price of your home, you could have an appraisal done. This typically costs a few hundred dollars. Remember: You’re always better off setting a fair market value price than setting your price too high. Studies show that homes priced higher than 3 percent of their market value take longer to sell. If your home sits on the market for too long, potential buyers may think there is something wrong with the property. Often, when this happens, the seller has to drop the price below market value to compete with newer, reasonably priced listings.

3. Prepare your home.

Most of us don’t keep our homes in “showroom” condition. We tend to overlook piles of boxes in the garage, broken porch lights, and doors or windows that stick. It’s time to break out of that owner’s mindset and get your house in tip-top shape. The condition of your home will affect how quickly it sells and the price the buyer is willing to offer. First impressions are the most important. Your real estate agent can help you take a fresh look at your home and suggest ways to stage it and make it more appealing to buyers.

• A home with too much “personality” is harder to sell. Removing family photos, mementos and personalized will help buyers visualize the home as theirs.

• Make minor repairs and replacements. Small defects, such as a leaky faucet, a torn screen or a worn doormat, can ruin the buyer’s first impression.

• Clutter is a big no-no when showing your home to potential buyers. Make sure you have removed all knick-knacks from your shelves and cleared all your bathroom and kitchen counters to make every area seem as spacious as possible.

4. Get the word out.

Now that you’re ready to sell, your real estate agent will set up a marketing strategy specifically for your home. There are many ways to get the word out, including: * The Internet * Yard signs * Open houses * Media advertising * Agent-to-agent referrals * Direct mail marketing campaigns In addition to listing your home on the MLS, your agent will use a combination of these tactics to bring the most qualified buyers to your home. Your agent should structure the marketing plan so that the first three to six weeks are the busiest.

5. Receive an offer.

When you receive a written offer from a potential buyer, your real estate agent will first find out whether or not the individual is pre-qualified or pre-approved to buy your home. If so, then you and your agent will review the proposed contract, taking care to understand what is required of both parties to execute the transaction. The contract, though not limited to this list, should include the following:

• Legal description of the property

• Offer price

• Down payment

• Financing arrangements

• List of fees and who will pay them

• Deposit amount

• Inspection rights and possible repair allowances

• Method of conveying the title and who will handle the closing

• Appliances and furnishings that will stay with the home

• Settlement date

• Contingencies

At this point, you have three options: accept the contract as is, accept it with changes (a counteroffer), or reject it. Remember: Once both parties have signed a written offer, the document becomes legally binding. If you have any questions or concerns, be certain to address them with your real estate agent right away.

6. Negotiate to sell.

Most offers to purchase your home will require some negotiating to come to a win-win agreement. Your real estate agent is well versed on the intricacies of the contracts used in your area and will protect your best interest throughout the bargaining. Your agent also knows what each contract clause means, what you will net from the sale and what areas are easiest to negotiate. Some negotiable items:

• Price

• Financing

• Closing costs

• Repairs

• Appliances and fixtures

• Landscaping

• Painting

• Move-in date

Once both parties have agreed on the terms of the sale, your agent will prepare a contract.

7. Prepare to close.

Once you accept an offer to sell your house, you will need to make a list of all the things you and your buyer must do before closing. The property may need to be formally appraised, surveyed, inspected or repaired. Your real estate agent can spearhead the effort and serve as your advocate when dealing with the buyer’s agent and service providers. Depending on the written contract, you may pay for all, some or none of these items. If each procedure returns acceptable results as defined by the contract, then the sale may continue. If there are problems with the home, the terms set forth in the contract will dictate your next step. You or the buyer may decide to walk away, open a new round of negotiations or proceed to closing. Important reminder: A few days before the closing, you will want to contact the entity that is closing the transaction and make sure the necessary documents will be ready to sign on the appropriate date. Also, begin to make arrangements for your upcoming move if you have not done so.

8. Close the deal.

“Closing” refers to the meeting where ownership of the property is legally transferred to the buyer. Your agent will be present during the closing to guide you through the process and make sure everything goes as planned. By being present during the closing, he or she can mediate any last-minute issues that may arise. In some states, an attorney is required and you may wish to have one present. After the closing, you should make a “to do” list for turning the property over to the new owners. Here is a checklist to get you started.

• Cancel electricity, gas, lawn care, cable and other routine services.

• If the new owner is retaining any of the services, change the name on the account.

• Gather owner’s manuals and warranties for all conveying appliances.x

Increasing Your Home’s Appeal

Remember the 60-second rule: That’s all the time you have to create a winning first impression. Here are some simple to significant ways to maximize your home’s appeal.

Exterior

• Keep the grass cut, landscape neat and remove all yard clutter.

• Weed and apply fresh mulch to flower beds.

• Apply fresh paint to wooden fences.

• Tighten and clean all door handles.

• Clean windows inside and out.

• Power wash home’s exterior.

• Ensure all gutters and downspouts are firmly attached and functioning.

• Paint the front door.

• Buy a new welcome mat.

• Place potted flowers near the front door.

Interior

• Evaluate the furniture in each room and remove anything that interrupts “the flow” or makes the room appear smaller.

• Consider renting a storage unit to move items off-site.

• Clean and organize cabinets, closets and bookshelves.

• Clean all light fixtures and ceiling fans.

• Shampoo carpets.

• Remove excessive wall hangings and knick-knacks.

• Repair all plumbing leaks, including faucets and drain traps.

• Make minor repairs (torn screens, sticking doors, cracked caulking).

• Clean or paint walls and ceilings.

• Replace worn cabinet and door knobs.

• Fix or replace discolored grout.

• Replace broken tiles.

• Replace worn counter-tops.

Special details for showings

• Turn on all the lights.

• Open all drapes and shutters in the daytime.

• Close all toilet lids in each bathroom.

• Keep pets secured outdoors.

• Buy new towels for bathrooms.

• Buy new bedding for bedrooms.

• Replace old lamps or lampshades.

• Play quiet background music.

• Light the fireplace or clean out the ashes and light a candelabrum.

• Infuse home with a comforting scent, such as apple spice or vanilla.

• Set the dining room table for a fancy dinner party.

• Vacate the property while it is being shown.

Understanding The Buyer

As the seller, you can control three factors that will affect the sale of your home:

• The home’s condition

• Asking price

• Marketing strategy

However, it’s important to note that there are numerous other factors that influence a buyer, and you need to understand these consumer trends when you enter the seller's market. The more your home matches these qualifications, the more competitive it will be in the marketplace. Your real estate agent can advise you on how to best position and market your home to overcome any perceived downsides.

Location

Unfortunately, the most influential factor in determining your home’s appeal to buyers is something you can’t control: its location. According to the National Association of REALTORS(r), neighborhood quality is the No. 1 reason buyers choose certain homes. The second most influential factor is commute times to work and school.

Size

While some buyers want to simplify their lives and downsize to a smaller home, home sizes in general have continued to increase over the decades, nearly doubling in size since the 1950's. Smaller homes typically appeal to first-time home buyers and “empty nesters,” or couples whose children have grown up and moved out.

Amenities

Preferences in floor plans and amenities go in and out of fashion, and your real estate agent can inform you of the “hot ticket” items that are selling homes in your market. If your home lacks certain features, you can renovate to increase its appeal, but be forewarned: That’s not always the right move. Using market conditions and activity in your neighborhood as a gauge, your agent can help you determine whether the investment is likely to help or hinder your profit margin and time on the market.