Buying a home can be a difficult process to pin down. Is it always better to buy than rent? How much do you really need to put down? To shed some light on this perplexing concept, here are some common myths associated with it — debunked.
Myth #1: It makes more sense to buy a house than rent.
Myth #1: It makes more sense to buy a house than rent.
Not always. While it’s true that buying a house helps people build equity over time, being a homeowner comes with lots of other expenses that renting doesn’t necessarily bring. In addition, in some cases, the first few years of paying the mortgage can result in only interest charges paid rather than paying down the loan — and that means sometimes buyers might not have as much equity as they think. It’s a good idea to evaluate your personal situation to see if buying is right for you instead of basing it off what other people deem the right choice.
Myth #2: You must put down 20 percent.
Sure, putting down a 20 percent chunk of the home is ideal, but you don’t necessarily need that to purchase a home. Realistically, few people can afford to do that. However, when you put down less than 20 percent, you may have to pay private mortgage insurance (PMI). And, some lenders have even begun to provide piggyback loans, where those with strong credit and low debt-to-income ratios qualify for a second loan toward the down payment.
Myth #3: Taxpayers can always write off the entire mortgage interest.
Most of the time, yes, people can use the interest they pay on their mortgage loan as a tax deduction, but the value of it may not be as much as you’d hoped.
“The value of the deduction is really just the extent that it plus other ‘itemized deductions,’ like state and local taxes and charitable contributions exceed your standard deduction, which is currently $6,100 for individuals and $12,200 for married couples filing jointly,” explains Liz Davidson, CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide. “However, the average mortgage interest rate in the U.S. is currently around 4.5 percent and the average loan balance is just under $150,000. Even if the entire annual payment was interest, at $6,750 per year it wouldn’t exceed the standard deduction for a married couple.”
Myth #4: You only need to save enough for a down payment.
Having a secure down payment is a good start, but it’s also important to keep in mind closing costs, which can be near 2-5 percent of your home’s purchase price. Also, many people buying homes tend to want to fix up certain areas before moving in, including repairs or improvements. And don’t forget, that house needs to be furnished. Perhaps most important, it’s wise to have enough money in the bank to cover 3-6 months of expenses, in case an emergency or something else comes up.
Myth #5: You don’t need to get a home inspection if the house appraises well.
It’s great if the home appraisal goes well, but it’s an entirely different process than a home inspection. While an appraisal estimates the home’s value, an inspection assesses the home’s condition. And that means that even if your home appraises for the sale price or higher, there could potentially still be unsafe elements or things that need to be repaired. The good news is that in some cases, buyers can negotiate with the seller to have certain items fixed. So in general, it certainly pays to have your home inspected, no matter whether the appraisal goes well.
Buying a home is one of the most costly things you will ever do, so make sure you do your research, and be sure to contact us if you have any questions.
