If you thought choosing the right home was difficult, think again. Planning a move can induce nightmares and panic attacks in a normally sane individual. Is it really possible to pack all the things you’ve accumulated over the years into a single moving truck without losing your sanity? It is – if you follow these five simple tips.
There’s no shortage of advice out there for home buyers. From blogs like ours, to parents and friends in the know, you’ll hear a lot about what you should, or shouldn’t, do.
Today, we’re setting out to bust the myths of some of the most popular pieces of real estate advice. We’ll break down the most often-heard nuggets of “wisdom” and find why or why not it might work for you.
Myth #1: Go it alone! Who needs a realtor?
Some fearless folks are willing to head out into the wilderness, learning as they go. It’s admirable, but when dealing with what is probably the single biggest purchase or sale of your life, a little backup never hurts.
Realtors provide valuable insight into the market at the ground level. They know the ins and outs of the area, are in tune with price indicators and they deal with home pricing every day.
When in doubt, pick up the phone and call a realtor. He or she can make the case for their services, but they can also offer guidance, often for free. And as with any service professional, ask friends and family for referrals.
Myth #2: The more you put down, the better off you’ll be
A down payment on a house serves two major purposes:
- It’s a cash payment that gives the bank capital to create the money for your mortgage.
- It ensures that if there is ever a default on your mortgage, the bank makes a percentage of its money back.
It also shows the bank that you’re able to manage your money well enough to save up a large sum of cash, which makes you a better-looking borrower.
You’ll hear that the ideal amount to put down on a house is 20% of the total cost, which for some, is simply out of the question. But just because you don’t have the cash doesn’t necessarily mean you can’t afford a mortgage. You don’t even have to put 20% down.
Federal Housing Administration Loans (FHA Loans) give you the option to put as little as 3.5% down. When your down payment dips below 20% though, you run into Private Mortgage Insurance, or PMI, which is an additional monthly payment.
But it’s not all bad news if 20% down is out of reach. The New York Times reported in September of 2009 that in the wake of the mortgage meltdown, lenders who used PMI received lower interest rates. In the lenders’ eyes, a down payment with PMI is insured, and therefore less risky.
In addition to a potentially lower interest rate, you have added flexibility with your money. With a traditional down payment, 20% of your home’s value is tied up in cash. That cash can be used to make repairs, make additional investments, or make additional payments on your PMI, which goes away once you paid the equivalent of 20% equity in your home.
Myth #3 Buying is best
Home ownership has its benefits. Things like tax deductions, pride of ownership and having additional equity are all great reasons. But it also comes with its hangups. Maintenance, a potential loss in equity…what if you have to move suddenly for a job?
But if you rent, those troubles go out the window.
For some, the ability to call a property manager when your roof springs a leak is well worth giving up that pride of ownership. Sure it feels great to mow your lawn for the first time this season. But come August, renters feel great to be able to sit back and sip lemonade without breaking a sweat.
What’s more, rent is relatively fixed. Increases can occur, but if it gets too costly to live in that Manhattan penthouse, you always have the option to pick up and find something more affordable. No questions asked.
Renting is ideal for some, just like home ownership is perfect for others.
Myth #4: Remodeling equals higher resale
Remodeling is a great way to breathe new life into the look of your house.
But that’s it.
It’s not an investment.
Whether you’re putting in a new shower, hardwood floors or new countertops, the money you spend could be recouped in the value of your home. But it’s not a guarantee.
Another thing to keep in mind: your favorite look might not be liked by everyone else. An extra lush pile and wood paneling just might make the den your favorite room in the house, potential buyers might not agree.
The best remodels are ones that add function and are pleasing to you or your family. Not the ones that make the most money when it comes time to sell.
Myth #5: It’s a bad time to buy/sell
No matter where you are in the country, no matter what’s happening in the housing market, nobody knows better than you when it’s a good time to buy or sell.
If a job relocation takes you to a different city, then the time to sell is now. If you and your kids are piled on top of each other, four to a bed a-la Charley Bucket’s grandparents, the time to buy is now.
Your situation will also dictate your timing. Do you have enough to put down on a home? Is there a strong enough reason to sell the home you’re in? Is your credit score beefy enough to get a decent interest rate? It all factors in.
Regardless of the market, there are homes out there that meet (or exceed) your needs. And if you’re looking to sell, the right price can get an offer.
Weighing the cost of selling your house (and not making 100% back on that dream den) is your decision. And nobody knows your situation better than you.
Buying and selling a house is a high pressure, high intensity process. You might not ever buy anything more expensive than your home, so go ahead and get worked up a little. It’s only natural.
There are enough twists to turn the stomach of even the most experienced of us.
Coupled with the advice that you get from your know-it-all uncle and your most trusted friend, your experience will be yours and yours alone. So use your best judgment, keep your wits about you, and armed with the top 5 debunked housing market myths. You’ll be just fine.
Have any myths of your own? Share them with the class and post them in the comments below.