When searching for a home for the first time, it's normal to start out with some preconceived notions about the process. Perhaps you received them from your parents, a friend's experience or even a TV show. Like any other major life event, there are many rituals and accepted practices surrounding the real estate search, some of which don't always hold water. Below are just a few typical myths surrounding the homebuying process.
Beginning the search
One of the most common refrains surrounding the purchase of a house is regarding when to start seriously looking. Typical advice says that springtime is the only time to buy a house. This may seem like a silly generalization, but it makes sense in certain markets. Much of the Midwest and Northeast, for example, experiences winters that make travel of all types very difficult. Snow and ice make it difficult to perform a home inspection or get a good sense of the property. It's also certainly harder to motivate yourself to do much of anything when the thermometer starts dropping. But in more southern or arid climates, this old adage doesn't generally apply. In speaking with several industry professionals on the topic, Realtor.com noted that cities like Miami and Phoenix experience a less pronounced dip in sales and inventory during the winter months, simply because they don't experience much of a winter. If you're in an area that might experience cold weather but not typically a lot of snow, off-season home shopping can make for great bargains. The combination of less competition and the chance of more hurried sellers means lower prices and quick closing.
Paying the price
Here's one you've probably heard time and time again: It's always better to buy than to rent. Like so many generalizations, this doesn't really make sense 100 percent of the time. The logic goes that homeownership is always an investment that will appreciate at a very favorable rate in a very short amount of time. Everyone hopes that this ideal situation applies to them, but the truth is more complicated than that. Not every real estate market is so white hot that any home could be flipped in just a couple of years for a profit. In fact, most homeowners won't break even on their investment in at least five years, Financial Finesse wrote in a Forbes contributor piece. This doesn't even take into account financial hardship brought on by personal problems or the market at large. With these caveats in mind, it's easy to see why this rule of thumb oversimplifies things. If you find yourself contemplating the classic question to rent or buy, this interactive tool from The New York Times can be very helpful.
Another typical suggestion related to the costs of a home involves mortgage payments. Many believe that opting for a 30-year fixed-rate mortgage is the way to go, since it will result in the lowest interest rate and monthly payment. Not so fast, said a few economists writing for ABC News. While a 30-year fixed rate loan offers the lowest month-to-month cost, making it an attractive option for homeowners on a budget, it actually ends up costing more than a shorter mortgage when it's all said and done - as much as $132,000 more if you pick a 30-year mortgage over a 15-year. Perhaps the stability of a longer mortgage is worthwhile for those who don't plan to move for a long time. Otherwise, there are much more financially sensible options depending on your long-term plans.
A survey of renters by New York investment firm Zelman and Associates found that many believed in another widely held myth: You need to save more than 15 percent of a home's list price to cover the down payment. Freddie Mac, one of the nation's largest mortgage lenders, stated that its purchase of mortgages with a down payment below 10 percent increased by four times between 2009 and 2013. Granted, this was at a time when sellers needed to incentivize a purchase as much as they could, given the state of the market after its 2007-2008 collapse. This statistic speaks to the volatility of down payment amounts. Thanks to government assistance programs offered by the Federal Housing Administration, among others, you might only need 3 percent down on a house, or none at all for qualifying homebuyers.
Still, there are several other expenses following the down payment that you need to consider. The costs of homeownership aren't just limited to mortgage payments. Financial Finesse listed the most typical expenses after closing a sale, which include closing costs, repairs or improvements, and furniture, just to name a few of the most pertinent. After that comes PITI (principal, interest, taxes and insurance), as well as homeowners association fees, utilities, and other little things. Maybe you've already been budgeting for these. If not, prepare for a litany of expenses that may negate a low down payment.