17 Common Myths About Buying A Home That Just Aren't True

Be prepared to rethink everything.

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Buying a home is probably the biggest financial decision you'll ever make. And yet, there are a TON of misconceptions around the process.

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To set the record straight, I talked with a pro who cleared up some of the most common myths about the home-buying process.

I interviewed Lexie Holbert, a home and lifestyle expert at realtor.com who knows a thing or two about buying a home. She gave me the skinny on the truth behind some of the most common misconceptions people have.

Just keep in mind: Everyone's financial situation is different, so take this advice with a grain of salt and do what makes the most sense for you.

1. It’s cheaper to rent than own.

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This one is tricky, because it's all about where you live. In some cities, especially on the West Coast, home prices are so high that renting may be cheaper. But in other cities — and many smaller towns — your mortgage, taxes, and insurance might actually be less than what you'd pay in rent. Plus, if you have a mortgage, the money you spend every month goes toward something you're working to own, which is always nice.

Holbert explained that in a recent analysis by realtor.com, "buying a home was found to be equal to or more affordable than renting in 15 of the 50 largest metros in the US," including cities like Cleveland, Chicago, Pittsburgh, and Miami.

2. Now is a bad time to buy.

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It's no secret that we're in the midst of a housing price boom and inventory is scarce, but that doesn't mean you should hold off. Holbert said that "mortgage rates are still at historic lows" — 2.81% for February 2021, according to FreddieMac. To put it in perspective, the average interest rate on a 30-year-fixed mortgage was 4.54% in 2018, 3.94% in 2019, and 3.11% in 2020.

But beyond lower-than-normal mortgage interest rates, Holbert said it's all about where you are in your life. "For example, if you found a town where you want to settle down and you need more space to accommodate remote work, now might be a great time to buy so you can take advantage of low interest rates. On the other hand, if you think you might want to move to a new location in two years or aren’t sure where you want to live, now is probably not a good time to buy. Generally, you want to stay in your home for five years or more."

3. You need to make a 20% down payment.

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Saving up to make a down payment can be one of the biggest hurdles that first-time buyers face, but you might not have to save as much as you think. You've probably heard people throw around 20% as the ideal or expected down payment you should make on a home — but it's in no way required.

"Contrary to popular belief, a 20% down payment is not required to buy a home, and in fact, the average down payment is 12%. Some people even put just 5% down," said Holbert. But keep in mind that the more money you can afford to put down, the lower your monthly mortgage payments will be.

4. If you want to buy a house, your credit score needs to be excellent.

Experian

Just because your credit isn't exactly spotless doesn't mean you can't be a homeowner. Lenders look at several factors — like your income, property type, assets, and debt levels — in addition to your credit score when deciding if you qualify for a mortgage.

To give you an idea of where you stand, Holbert said that "credit scores generally range from 300 to 850, and the average FICO score [a credit score created by the Fair Isaac Corporation] was 710 in 2020." She added that if you have a lower credit score, it might help to look into the Federal Housing Administration, which has programs for people with lower scores. And if you're working on improving your credit, you might also want to check out some things that people say helped them increase their scores.

If you don't know your credit score, you can look it up for free by making an account with Experian, which is one of the three credit bureaus, or through your bank.

5. You can’t qualify for a mortgage if you have student loans.

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Thankfully, Holbert nixed this one flat out.

"It all comes down to how much debt you have and how that debt relates to your income and credit score. Mortgage lenders will look at your debt-to-income (DTI) ratio to see how much money you spend compared to how much you have coming in, calculated as the percentage of your gross monthly income used to make monthly debt payments," said Holbert.

That means, the less debt you have, the better, but having student debt won't ruin your chances of buying a home. Holbert added that "you’ll want to have your DTI at 50% or less to qualify for a mortgage. The lower the better."

6. All lenders will give you the same deal.

Bankrate.com

It pays to shop around. I repeat: It pays to shop around. That's because signing up for a mortgage with a slightly higher interest rate can end up costing you thousands of dollars more than what you would be paying otherwise.

"You’ll want to shop around as each lender will offer you something slightly different," said Holbert. You might talk to your bank, an online mortgage lender, and a credit union to see who can offer the best mortgage for your needs.

7. You have to have a real estate agent.

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Holbert clarified that no, you don't have to have a real estate agent, but noted that "this is most likely the largest financial decision of your life so you should definitely consider it."

She explained that a real estate agent knows what homes in your area have been going for and what's available. Their job is to help you navigate the buying process and, in many cases, do the leg work on your behalf. In return, they typically take a 5 to 6% commission; so, for a $200,000 home, a 6% commission would amount to $12,000.

8. You should find a house you want, then apply for a loan.

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Looking at homes can be fun (and addicting) but if you're serious about buying, it's a good idea to get preapproved for a mortgage before you allow yourself to go down the Zillow rabbit hole.

Holbert confirmed that getting preapproved for a mortgage is the "most important thing a buyer should do." She explained that "in today’s market, if you’re waiting to get approved while trying to make an offer, it’ll be too late."

9. If you're preapproved for a mortgage, you can automatically get a loan.

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So let's say you just got preapproved and you're feeling excited. However, preapproval doesn't mean you're guaranteed a mortgage from the lender. While a little counterintuitive, Holbert explained, "You need to go through the full lending process for it to be final. Also, if your financial, employment, and/or income status change during the time between prequalification and underwriting, your loan could be denied."

10. You should buy a home for the maximum mortgage you qualify for.

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It's really not about how big of a loan you can get but what you can afford to pay each month, keeping in mind that unexpected home expenses are going to be a reality.

"You don’t want to max yourself out with your mortgage; because as a homeowner, you’ll find you never know what issue (and unforeseen cost) can arise and you’ll want to be prepared for that," said Holbert. "The general rule of thumb is that your monthly housing costs shouldn’t be more than one-third of your income. Plus, you also want to keep 3–6 months [of expenses] in savings in case of emergency."

11. You should always go with a 30-year fixed mortgage.

Bankrate.com

There are actually several different mortgage types and five major ones. Who knew?

While Holbert said most buyers go with a 30-year fixed mortgage because of the stability it offers (you'll pay the same amount every month for the life of your loan), she also explained that "this too depends on your personal situation. ... There are lots of other options out there that you should discuss with your lender."

The second-most common mortgage is an adjustable-rate mortgage, which usually has a lower initial interest rate than a fixed mortgage but then fluctuates (both up and down) — resulting in varying monthly payments.

12. You should always choose the loan with the lowest interest rate.

Nerdwallet

On the surface, the mortgage with the lowest interest rate seems like the obvious choice but there is a whole lot more to consider when choosing a loan. Often, the loans with the lowest interest rates are adjustable-rate mortgages, meaning the interest rate isn't fixed and can jump around after a period of time.

Again, it really depends on your situation: how long you expect to own the house, if you expect you'll be able to pay off the house quickly, and if you're expecting an income increase in the next couple years.

"You need to look at all the terms, not just the interest rate," confirmed Holbert.

13. Don’t buy until you find your dream home.

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Vaulted ceilings, a claw-foot tub, and a two-car garage may be on your wish list, but just because you're not finding your perfect home at a price you can afford now doesn't necessarily mean you should wait it out.

"Your dream house may be a couple houses away. Buying a smaller home, a starter home, is likely a necessary stepping stone to building enough equity to get you to your dream home. You’ll want to weigh out your needs vs. wants when evaluating any home to make sure it’s worth the investment in the short run," said Holbert.

14. It’s smarter and cheaper to buy a fixer-upper.

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If you're handy — or are up for the challenge — it may be tempting to buy that noticeably less-expensive fixer-upper. But, Holbert warned, "A fixer-upper gives you the opportunity to spend less up front, but you’ll have to put the money and construction time into it. You also have to keep an eye on your budget. Renovating could end up costing as much as a move-in ready home after you're done."

So again, it all comes down to you. Unless you know you can stick to a modest budget or have the skills to do the renovations yourself, buying a fixer-upper could actually end up costing you much more in the long run.

15. A house's listing price is what you'll end up paying.

Realtor.com

This is wrong on several levels. For one, Holbert noted that "what a house actually sells for is based on what buyers are actually willing to pay for it. With so many buyers in the market now, it’s common for bidding wars to take prices above listing price."

Yes, you read that right: bidding wars. Research by realtor.com found that "nearly half (49%) of recent first-time homebuyers and more than a third (39%) of prospective first-time homebuyers said they fell in love with a home last year that they were outbid on or later learned they couldn't afford."

And even if you don't get outbid, there are other costs to consider in addition to the listing price. Holbert mentioned "closing costs, homeowners insurance, and taxes to name a few. There are also the ongoing costs of homeownership like increased utilities, HOA dues, repairs. That’s why it’s really important to make sure you really stick to your budget and have enough as an emergency fund."

16. Your mortgage will be your only monthly home-related expense.

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As a homeowner, you'll be responsible for other regular expenses in addition to your monthly mortgage. Holbert said you'll need to also budget for "insurance, taxes, utilities, and upkeep" and warned to take these factors into consideration before you decide on a house. "For example, the cost to heat or cool a home compared to an apartment is vastly larger. Plus you’ll be paying for insurance and any maintenance or fixes needed." To learn more about what kinds of costs you can expect, check out these things people wish they'd known before buying a house.

17. Your accepted offer is set in stone.

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So, the seller accepted your offer. You're good to go, right? Wrong.

Holbert explained that "Until your home has closed, nothing is set in stone. There are A LOT of things that need to happen between offer and contract and close — getting your loan funded, appraisal, inspection, removing contingencies — and things can change."

The takeaway: Wait until the closing date to pop that champagne.

Are you a homeowner or in the home-buying process? Share your best tips you've learned about buying a home in the comments below.

And don't forget to check out more of our personal finance posts.