These Home Buying Myths Could Cost You BIG!

If you’re anything like me when I was thinking about buying a house, you could not keep me off Zillow.

I spent every weekend going to open houses and wasn’t going to stop until I found the perfect place. It was fun…until it wasn’t, and I was exhausted and disappointed by everything I saw.

The home-buying process can be stressful. And to make it worse, there’s a lot of misinformation out there about what kind of mortgage you should get, how to get a great deal on a house, and so much more.

Today, I’m going to set the record straight on some of the most common home buying myths.

Home Buying Myth #1: Exploring options is the first step to buying a house

I know it’s tempting to hop onto Zillow and do a little window shopping. I mean, it can’t hurt to just look…right?

But there are several things you should do BEFORE you start even casually house-hunting. Here’s a quick summary of the first things to do before buying a house:

1. Get pre-approved for a mortgage. This will give you an idea of where you can start looking and how to set your price filters.
2. Decide how big a mortgage you can take on. Sometimes you’ll be approved for a mortgage that’s bigger than you can actually afford to maintain your desired lifestyle.
3. Decide your non-negotiables. Get a clear picture of what you need in your home. Is having an open kitchen really important to you? Do you want a big backyard? Do you need three bedrooms or will two be fine? Do you need it to be move-in ready or are you willing to do some improvements?
4. Save for a down payment and closing costs.

Home Buying Myth #2: You should get a 30-year fixed rate mortgage

Most people opt for a 30-year fixed rate mortgage because the monthly payments on a 30-year are lower than those on a 15-year mortgage and with a fixed rate, you know exactly what you’re paying every month.

But the downside of a 30-year mortgage is that you do end up paying more. After all, you’re borrowing the same amount but taking twice as long to pay it off, so you end up paying more in interest.

That isn’t to say that a 30-year mortgage is a bad idea, but it’s not necessarily the best one for you and your situation. Do your research and look at all the options before you decide.

Home Buying Myth #3: You should pay your house off as soon as possible

Whether or not you should pay your mortgage off early isn’t cut and dry.

There are benefits to paying off your house quickly. For one thing, the sooner you pay it off, the less you owe in interest and the less you have to pay overall. But that doesn’t mean it’s the best use of your money.

Let’s say you have $50,000 in savings and you can either use it to invest or make an extra payment on your mortgage. The wisest financial move you can make is to invest it.

Why?

Because if you use it to pay off your mortgage, you’re just saving the interest rate on your mortgage - likely 2-5% per year. But if you invest it instead, you could be earning 7-8% per year.

So you can actually make more money by putting that chunk of cash into the stock market than paying off your mortgage early.

Want to understand that concept using real numbers? Let’s take a look.

If you took that $50,000 and put it toward your mortgage principal (let’s say that had a 3% interest rate), you’d save $1,500 in interest payments. But if you put $50,000 in the stock market, you’d make $3,500-4,000 PER YEAR with that money. That’s 2-3 times MORE money than you’d save by paying off your mortgage, and that’s just one year of keeping that money invested. If you keep it invested for even longer, you’d make even more.

No brainer, right?

Home Buying Myth #4: You don’t need a home inspection

When the market is hot and houses are going quickly, you might be tempted to waive the inspection to secure the deal. But that is taking a huge gamble. There are so many invisible things that could be wrong with a house.

There could be decaying wood or structural damage. There could be electrical issues. There could be a gas leak.

These issues could be extremely expensive to fix – not to mention life-threatening.

Save yourself time, money, and some major headaches and insist on doing a home inspection.

Home Buying Myth #5: You can’t buy a house if you have student loans

When you apply for a mortgage, one thing that lenders look at is your Debt-to-Income ratio or DTI.

Essentially, your DTI compares how much you OWE each month - your debt - to how much you earn each month - your income.

To calculate your DTI, add up your total monthly debts — such as your minimum monthly credit card payments, any child support you owe, your rent or mortgage, and your monthly student loan, auto loan, or other monthly loan payments – and divide that number by your total monthly pre-tax income.

As an example, let’s say that last month you paid $1,000 in rent, $1,000 in student loan payment, and $400 as the minimum payment on credit card for a grand total of $2,400. And you earn $6,000 every month. If you divide 2,400 by 6,000, you get a DTI of 40%.

Of course, you’ll look better to lenders if you don’t have debt, but even if you have student loans, as long as your DTI is below 36%, you should be able to get approved for a mortgage.

Home Buying Myth #6: You should buy a fixer upper

You’ve probably seen a home improvement show or two where they transform someone’s dated vintage house into their all-white dream farmhouse. And that’s when you hop on Zillow to find your fixer-upper.

While it’s tempting to believe that you can work that same home renovation magic, you may end up having to spend much more time and money than you were budgeting to get that jaw-dropping transformation.

Depending on the market and the difficulty of permitting, the cost of renovations could end up being equivalent to the price of a move-in ready home… not to mention the cost of your peace of mind as you manage the renovation process.

Unless you’re confident that you have the skills to do renovations yourself or can keep renovations at a manageable price, leave the home flips for HGTV.

I hope this helped clear up some of the misunderstandings about what it takes to buy a house and gives you the confidence to buy a place you can call your own. Happy hunting!