Posted September 09,
2013
Re-Posted September 12,
2013
Top 5 Myths About Home Buying Today
By Robert McGarvey
NEW YORK (MainStreet) — The fact is, buying a home today
is absolutely, totally different from buying one in 2003. And right there is
why so many myths swirl around a process that, in many ways, is utterly novel
from what it has been. What was true isn't anymore.
Be ready to be shocked
as we bust some myths below.
Myth
1: You need a 20%
downpayment even to think about buying a home, and that means maybe a couple
hundred thousand in cash for a would be Manhattan
apartment hunter.
Totally false. "A
down payment can be very low," said Joe Parsons, senior
loan officer with PFS Funding, a mortgage banker in Dublin, Calif. "There
are conventional loans requiring just 3% for a down payment or even zero - the
VA home loan program for veterans will cover 100% of the purchase price."
Maybe five years ago, in
the belly of the beast of the mortgage meltdown, 20% was in fact a necessity,
but today most lenders are way more flexible. And if yours isn't, go elsewhere.
Myth
2: Only those with golden credit need apply for home mortgages.
Rubbish. The past half
dozen years have been rough. High unemployment, a housing implosion, you know
the realities. So do lenders, and an upshot is a heightened willingness to
overlook past peccadilloes such as a foreclosure.
"Credit dings and
blemishes, even a bankruptcy, short sale or foreclosure do not prevent you from
getting a loan, even with a very low down payment such as 3.5% for an FHA
loan," said Bruce Ailion, a realtor with RE/MAX in Georgia.
A new FHA initiative called "Back to
Work" explicitly cuts the time to qualify for a new mortgage after a
foreclosure, bankruptcy or similar to as little as one year for borrowers who
can prove their past financial difficulties
were due to extenuating circumstances out of their control.
Myth 3: Fixed rate mortgages are the only way to go.
Not true, said David Reiss, a
professor at Brooklyn Law School who specializes in real estate. He elaborated:
"The necessity of getting a 30-year fixed rate mortgage is one of the
biggest myths about home buying. The average American household stays in their
home for about seven years. Typically, 30-year fixed rate mortgages have higher
interest rates than adjustable rate mortgages (ARMs). Homebuyers should take a
hard look at their plans for the new home."
Only 6.5% of applications for
mortgages in a recent period were for ARMs, according to the Mortgage Bankers
Association. A typical ARM went out at 3.21% interest, versus 4.69% for a
typical 30 year fixed rate. That adds up to a difference worth tens of
thousands of dollars over, say, a seven year probable life of the loan.
Do the math.
Myth 4: Cut out the realtor, represent yourself and
you will save a fast 3%.
That is just about never true.
The realtor's commission - 5 or 6
% in most of the country - is paid by the seller. In most contracts that
realtor agrees to "co-broke," which means he or she will split his
commission with a buyer's agent.
Explained Sam DeBord, a broker
with Coldwell Banker Dan forth in Washington State: "Most listing agents
sign a contract with the seller for a certain commission percentage - for
example, 6%. They offer to share a portion of that if a cooperating buyer's
agent enters the picture - for example, 3% - but if there is no buyer's agent
involved, the full 6% is still paid by the seller to the listing agent."
The buyer has absolutely no say in this, at
least in theory.
Could a tenacious and persuasive
buyer negotiate, say, a 1% cut in the selling price by self representing?
Probably.
But saving the full 3% just isn't
going to happen, said multiple sources.
Myth 5: If you can, you should buy a home right now.
Very probably homes will be a
strong investment over the next 10 to 20 years, mainly
because in most markets prices have been savaged compared to 2005 through 2007
highs. What goes down goes up and the same will be true with housing.
However there are plenty of
reasons why renting is the better choice for many. It's flexible. There's
little commitment. Take a new job in a different part of the country, and it's
usually easy and low cost
to move on.
There also is no knowing how long
recovery will take for housing where you live, and in some parts of the nation,
experts predict it will be another 20 years before the 2006 highs are hit
again.
"Just because you can afford
to buy a home, doesn't mean you should," said Steven Alexander, the
president of Private Mortgage Services, a division of Private Bank of Buckhead
in Atlanta. "There are many factors that need to be considered before
making that type of commitment. Do I have the time and financial wherewithal
to maintain a home? How long do I plan to stay?"
Home buying makes sense. Often.
But it is not a financial fast track to wealth. Know that, and the decision-making
gets that much easier.
--Written by
Robert McGarvey for MainStreet
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You’ve been searching for the perfect home for quite a while, and finally, you’ve found it! You get all of your finances in order and place an offer on the house.
Most of the time when buying a property, there are a few obvious factors that you will consider – such as the location, the number of bedrooms, the accessibility to schools or your workplace, the need for repairs and any interior features. However, there are a few things that might not have crossed your mind during your house hunting but are still quite important.
