As home prices climb, home buyers have a tougher time accumulating a cash down payment that amounts to 20 percent of the typical purchase price. The good news: You can usually get your dream house with a smaller up-front payment. On the downside, however, you’ll have to buy either private mortgage insurance or government insurance for at least a few years. Be forewarned: This insurance can add hundreds of dollars to your mortgage payment each month.
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- 11 Myths Homebuyers Should Never Believe
11 Myths Homebuyers Should Never Believe
Always Make a 20 Percent Down Payment
Choose Only a 30-Year Fixed Mortgage
Your parents probably had a fixed, 30-year term on their home loan, and they may even have stayed in the house long enough to pay it off. But recently, other options have increased in popularity, and home buyers may find real advantages—and much lower interest rates—with 15- or even 7-year loans. Be sure to explore all mortgage options when buying a home, and discuss the decision with a banker or financial adviser.
Cash Buyers Always Win
Sure, sellers love the simplicity of accepting a big pile of cash instead of having to deal with buyers who need financing. But an all-cash offer isn’t a guaranteed winner. Home buyers who are willing to outbid an all-cash offer certainly have a decent shot at nabbing the house.
Real Estate Is Always a Safe Investment
During the housing crash of 2008, many homeowners learned firsthand the risks of investing in real estate. Since then, however, housing prices have bounced back, and plenty of young buyers are entering the market. All the same, when you're in the process of buying a house, remember that what goes up can also come down.
Buy the Worst House in the Best Neighborhood
The strategy of searching for a low-priced steal in high-priced ZIP code isn't always the best game plan. If the cost of making the house livable will be sky-high, or if it has too many drawbacks that can't be fixed (for example, if it's located next to an interstate or a noisy business), then the house may not be such a bargain after all.
A House Inspection Is Optional
Too often, inexperienced buyers agree to waive the inspection in a hurry to nail down a deal. Don't fall for this! Skipping the inspection is almost always a mistake. Far from a mere formality, an inspection is a great way to slow down the purchase process, uncover major problems with the house before completing the sale, and find ways to negotiate the final price. Don’t omit this vital step.
Start Looking for Homes in the Spring
Sure, spring is the most active time for real estate investment, because both sellers and buyers are preparing for the summer moving season. There’s no need to wait until the daffodils bloom, though, to begin your home search. House-hunting in the fall and winter may actually save you money because you'll probably be competing with fewer potential buyers, which should hold prices down.
Skip the Buyer’s Agent and Go Straight to the Internet
While home buyers can certainly find listings online, they may be better off working with a buyer’s agent instead. Buyer's agents do more than just show what’s for sale. They also give the lowdown on comparables in the market, help steer buyers away from properties that have potential problems, and provide guidance during the negotiation phase. It’s always a smart idea to have an experienced pro on your side.
Your Accepted Offer Is Set in Stone
So, the buyer has told the seller what she's willing to pay, and the seller has accepted. While both parties have agreed to the offer, it’s still not set in stone. If house-related issues turn up during the inspection, or if the seller asks for an unusually fast closing, the buyer may be able to shave hundreds or even thousands of dollars off the price.
Prequalification Means an Automatic Loan
Before buyers start looking for houses in earnest, they’ll probably go through a bank’s prequalification process to find out how much money they can borrow. Be aware, however, that banks don’t always disclose how theoretical this number can be. Once the bank completes a more heavy-duty vetting of a buyer's finances, it may decide that it's willing to loan less than originally planned—or even nothing at all.
Buyers Without Kids Don’t Need to Pay Attention to the Schools
Even buyers who don't have school-aged children should think twice before moving to a neighborhood with poorly ranked schools. Great school districts make for highly coveted neighborhoods, so when you’re ready to sell your home in the future, the next buyer may be willing to pay a premium to be in your district. So, before you buy, take time to study up on the quality of the nearby schools.