Buying a home is one of the biggest financial decisions most people make in their lifetime. Unfortunately, there are many myths and misconceptions surrounding the real estate market that can lead to poor decisions. These myths can cause buyers to wait too long, spend too much, or miss out on great opportunities.
In this article, we’ll debunk 10 of the most common real estate myths and provide the facts every buyer should know before entering the market. By separating fact from fiction, buyers can make more informed decisions and navigate the complex world of real estate with confidence.
Myth 1: It’s Better to Wait for the “Perfect” Home
Many buyers believe they should keep searching until they find a home that checks every item on their wish list. They think that if they’re patient enough, the ideal home will eventually come on the market at just the right price.
However, the reality is that the “perfect” home rarely exists. Every property has its pros and cons. Holding out for perfection often means passing up homes that could be a great fit.
Instead of waiting for a unicorn, buyers need to prioritize their must-have features and be willing to compromise on less important wants. Homes that are priced well and show well tend to sell quickly in most markets. Waiting for something better to come along often means losing out to other buyers.
The best approach is to make a list of your top priorities, like location, number of bedrooms, and key amenities. Be willing to make tradeoffs on things that are less critical. Accepting some minor flaws could help you find a fantastic home without a prolonged search.
Myth 2: It’s Always Better to Buy Than Rent
Some people believe that buying a home is always a better financial decision than renting. They see renting as “throwing money away” on something you don’t own.
But the rent vs. buy debate is more complex than that simple view. Buying a home isn’t the right choice for everyone. There are pros and cons to both renting and buying that depend on your lifestyle and financial situation.
Renting provides more flexibility if you may need to move in the near future. It also means the landlord is responsible for maintenance and repairs, not you. Renting can free up more of your money to invest in other ways.
On the flip side, buying a home is a long-term investment that can build equity over time. It provides more stability and control over your living space. But it also comes with a significant financial commitment, including the down payment, mortgage, property taxes, insurance, and ongoing upkeep costs.
The right decision depends on your personal circumstances and goals. Consult with a financial advisor to analyze the numbers and determine the best option for you. Don’t assume buying is always better.
Myth 3: You Need a 20% Down Payment
Many people believe that you need to put down at least 20% of the home’s purchase price to buy a house. While a 20% down payment does have advantages, like avoiding private mortgage insurance (PMI), it’s not always necessary.
In fact, there are many loan programs available that allow for much lower down payments:
| Loan Type | Minimum Down Payment |
|---|---|
| Conventional | 3% |
| FHA | 3.5% |
| VA | 0% |
| USDA | 0% |
A larger down payment will lower your monthly mortgage costs and could help you get a better interest rate. But don’t let the 20% myth scare you away from homeownership if you can’t reach that number.
Determine how much you can comfortably afford to put down and explore your loan options. Assistance programs for first-time buyers may also help cover down payment and closing costs. Just be aware that with a lower down payment, you may have to pay PMI and your monthly payments will likely be higher.
Myth 4: Your Credit Score Doesn’t Matter
Some buyers mistakenly believe that their credit score doesn’t matter when applying for a mortgage. But in reality, your credit score is one of the most important factors lenders consider.
Lenders use your credit score to assess how likely you are to repay the loan. A higher score tells them you’re a lower-risk borrower. A lower score suggests you may be more likely to default.
Your score can impact your loan approval, interest rate, and terms. A higher credit score will help you qualify for a lower interest rate, which can save you a significant amount of money over the life of the loan. For example:
| Credit Score | APR | Monthly Payment | Total Interest |
|---|---|---|---|
| 760-850 | 3.307% | $1,384 | $148,229 |
| 660-679 | 3.844% | $1,471 | $179,538 |
Example: 30-year fixed mortgage, $300,000 loan. Source: myFICO.com
If your credit is low, lenders may deny your application or charge you a much higher interest rate. So before you start house hunting, check your credit report and score. If needed, work on paying down debt, disputing errors, and making on-time payments to improve your credit and position yourself for better loan offers.
Myth 5: You Can’t Buy a Home with Student Loan Debt
Student loan debt is often cited as a reason millennials and younger generations are delaying homeownership. Some buyers assume that having student loans will automatically disqualify them from getting a mortgage.
But while student debt can impact your home financing, it doesn’t mean you can’t buy a house. Lenders look at your whole financial picture, including your income, savings, credit, and debt-to-income ratio (DTI).
Your DTI is the percentage of your gross monthly income that goes toward debt payments, including student loans. Most lenders prefer a DTI under 36%, but some programs allow up to 50% with compensating factors like good credit.
If you have a stable income and your other debts are low, you may be able to qualify for a mortgage even with student loans. The key is to work on paying down your student debt as much as possible before applying. Lowering your loan balance will reduce your monthly payments and DTI.
Be upfront with your lender about your student loans. Provide documentation of your payment history and remaining balance. Show that you’ve been responsible with this debt. The lender will then factor your loans into their evaluation of what you can afford.
Myth 6: You Don’t Need a Real Estate Agent
With so much real estate information available online, some buyers believe they can navigate the market without an agent’s help. They think going solo will save them money by not having to pay a commission.
But while you can search listings and attend open houses on your own, working with a knowledgeable real estate agent provides significant value that can outweigh the costs. Agents have tools and expertise that most consumers don’t.
Real estate agents have access to the full MLS, so they can help you find off-market or coming soon homes that fit your criteria. They can set up custom searches and alert you to new listings right away.
Agents also have in-depth knowledge of the local market. They can advise you on fair pricing, negotiate on your behalf, and help you craft a competitive offer. They can spot potential issues with a property that you may miss.
Your agent will guide you through all the paperwork and deadlines involved in the sale. They coordinate with the seller’s agent, lender, inspector, title company, and others so you don’t have to.
Interview several agents to find one with experience in your target area and price range. Choose someone you trust and feel comfortable working with. They should be responsive, a good communicator, and have your best interests in mind. A great agent can make the homebuying process much smoother and less stressful.
Myth 7: The Listing Price is Set in Stone
Some buyers assume that a home’s listing price is non-negotiable. They think sellers set a take-it-or-leave-it price and won’t budge.
But in reality, many list prices have room for negotiation, especially in a buyer’s market. Sellers often build some wiggle room into the price, expecting buyers to submit lower offers.
To know if a price is negotiable, research “comps” — similar homes that have sold recently in the area. Look at sale prices, not list prices. If the home you want is priced higher than the comps, that signals an opportunity to negotiate.
Your agent can run a comparative market analysis and advise you on a fair price for the property based on the comps and other market conditions. They can then help you craft a strong offer that’s attractive to the seller but also protects your interests.
Many factors influence a seller’s willingness to negotiate, including:
- How long the home has been on the market
- If the seller has already purchased another home
- How much buyer competition there is
- Whether the seller is highly motivated (e.g. due to divorce, job relocation)
Even in a competitive market, it never hurts to try negotiating, just be realistic. Making a lowball offer far below market value is likely to get rejected. Focus on negotiating terms like closing date, contingencies, and seller concessions in addition to price.
Myth 8: You Can Afford More Than the Pre-Approval Amount
Getting a mortgage pre-approval is an important step in the homebuying process. It tells you how much a lender is willing to loan you based on your credit, income, assets, and debt.
However, some buyers make the mistake of thinking they can or should spend more than that pre-approval amount. They see it as a target to aim for rather than a maximum limit.
But your pre-approval is the most the lender thinks you can afford, not necessarily what you should spend. Lenders use standard debt-to-income ratios to determine your loan amount. But they don’t know your full financial picture and other goals.
To determine how much you can comfortably afford, build your own budget. Look at your take-home pay and all your monthly expenses, including discretionary spending and savings goals. Factor in your down payment, monthly mortgage, property taxes, insurance, HOA fees, utilities, and maintenance costs.
Your mortgage payment should fit within your budget without sacrificing other financial priorities. You don’t want to end up “house poor,” with little left over after your housing costs.
Aim to keep your mortgage payment below 30% of your take-home pay. That leaves enough room for other expenses and savings. Buying below your pre-approval ceiling gives you a safety net if your income changes or unexpected costs arise.
Myth 9: You Can’t Get a Mortgage with Bad Credit
Some buyers think that poor credit automatically disqualifies them from getting a mortgage. They assume no lender will take a chance on them if their score is low.
It’s true that having a low credit score makes it harder to get approved for a home loan, but not impossible. Lenders look at your whole financial picture, not just your credit score. If you have a steady income, low debt, and money saved for a down payment, you may still have a chance.
There are also several loan programs designed for buyers with lower credit scores. For example:
- FHA loans allow scores as low as 500 with 10% down or 580 with 3.5% down
- VA loans have no official minimum credit score (though most lenders prefer 620+)
- Some conventional loans allow scores as low as 620
The tradeoff is that with a lower credit score, you’ll likely pay a higher interest rate and have a smaller choice of lenders. You may also need a larger down payment or have to pay mortgage insurance.
If you have low credit, work on improving your score before applying for a mortgage. Pay all bills on time, pay down debt, keep credit card balances low, and avoid new credit applications. Cleaning up your credit can help you qualify for better loan terms.
You can also apply with a co-borrower who has stronger credit to improve your application. Or look for alternative loan programs like rent-to-own or owner financing if you don’t qualify for a traditional mortgage.
Myth 10: You Need a Big Down Payment
Surveys show that saving for a down payment is one of the biggest obstacles to homeownership. Many people think you need 20% down or more to buy a home. That can seem like an impossible amount of money to save.
But in reality, you don’t need a huge down payment to become a homeowner. As mentioned earlier, many loan programs allow for low down payments of 3-3.5% for conventional or FHA loans. VA and USDA loans even offer 0% down for eligible buyers.
A larger down payment does have benefits:
- You’ll have a smaller loan and lower monthly payment
- You’ll likely get a lower interest rate
- You can avoid paying for mortgage insurance
However, waiting to save 20% could mean missing out on the benefits of homeownership in the meantime, like building equity, tax deductions, and pride of ownership. With home prices and rents rising in many areas, waiting may cost you.
The key is to determine how much you can comfortably afford to put down now while still having cash reserves for closing costs, moving, and emergencies. Explore your low down payment loan options and first-time buyer assistance programs.
If a low down payment means a monthly mortgage you can afford and you plan to stay in the home long-term, it may make sense to buy now rather than wait. You can always make extra payments over time to build equity faster.
In conclusion, buying a home is a big decision with a lot of misconceptions surrounding it. By learning the truth behind these common real estate myths, you can approach the market with more confidence and realistic expectations.
