Housing Market 2023: 8 Myths About Getting Approved For a Mortgage
The real estate market is changing fast.
Sellers have been lowering their asking prices at the highest level since before the pandemic. Mortgage rates are closing in on 6% as the Federal Reserve works aggressively to fight inflation.
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The red-hot seller's market that dominated the post-pandemic era is shifting, and buyers who have been waiting for a market correction might finally see their patience pay off.
The last thing they need is misinformation to cloud their judgment and cost them money, yet homebuying myths are still as common and costly as they've ever been.
GOBankingRates asked the experts to call out the homebuying fictions that they see foil the most buyers. They named the myths that bother them the most -- and explained the truth behind them.
Myth: There's a Right Time of Year To Buy
It's a fact that a disproportionate number of homes hit the market in the spring and summer, but what isn't a fact is the widespread belief that it's somehow wrong to buy when the weather is cold.
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"A common myth amongst homebuyers suggests that there are better seasons, or times of the year, to purchase a home," said Jason Gelios, founder of ItsAllAboutTheRealEstate.com. "While there are highs and lows in activity, a homebuyer should make their purchase or decision when it's the best time for them mentally and financially. A homebuyer should not base a home purchase solely on what time of year it is."
Myth: You Need To Put 20% Down
Historically, homebuyers needed to save one-fifth of the home's purchase price as a down payment for lenders to take them seriously. Those days are long gone -- yet the misconception endures.
"One of the most common myths is the belief that a 20% down payment is necessary to buy a home," said Tom Kelly, CTO of Life Part 2. "This is not always the case. In fact, there are many programs available that allow for homebuying with a down payment of 3.5% or less."
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Myth: You're Not Ready To Buy If You Have Outstanding Debts
Your credit should indeed be in tip-top shape before you apply for a mortgage -- or any loan, for that matter. But you can be in excellent financial health with an equally excellent score even if you have some unresolved debt -- anything to the contrary is real estate urban legend.
"I have heard several people say that they can't buy a home until they pay off their student loans," said Tomas Satas, founder and CEO at Windy City HomeBuyer. "I always ask them if they are paying rent, and they are. You're paying for housing either way. You should give yourself an opportunity to get a return from it."
Myth: Smart Buyers Play Hard To Get
In the classic negotiation scenario, the buyer goes low, the seller goes high and they meet somewhere in between. The myth is that this dynamic always applies to real estate the way it does to used cars. This is not the case -- especially while the scales are still tipped in favor of sellers.
"It has long been a myth that in order to spark the sellers' attention you need to pretend not to care so much about the house," said Nicky Taveras of DNT Home Buyers. "This is usually done by submitting a very low offer. This is not only untrue but it can backfire spectacularly. You are showing the seller you're not motivated, and they might think that by accepting your offer, you could back out at any time if you found something you like better. Sellers want people who are reliable and in love with the home."
Myth: Thanks to Apps Like Zillow, You No Longer Need an Agent
There's no shortage of real estate apps that make it easy and fun to go house hunting online -- and since you don't need a real estate agent to show you the MLS listings, you might start to think you're a real estate agent yourself.
You're not.
"Buying property is complex and involves risks and problems that can get stressful and expensive quickly," said real estate agent Mike Stewart. "Around 15% of my business is helping people who have bought properties on their own and have made a mess of it. Be it getting tripped up by not sweating the details in a sales contract or dramatically overpaying for a property, these people would have paid less and had an easier time had they hired an experienced and trusted realtor in the first place. The worst is when I say I can't help and that they need to contact a lawyer -- and this happens all the time.
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Myth: Always Pay Off Your Mortgage Early If You Can
A common personal finance myth says that all debt is bad and that misconception fuels a real estate myth that says it's always wise to pay off your mortgage as quickly as possible.
The truth is that if the loan is reasonable, there are probably better ways to spend that money.
"There are many reasons not to pay off your primary residence," said TJ Adams, owner of Adams Home Solutions. "First, the money lent for a primary residence is likely to be low-interest relative to other forms of lending. The intent of a 30-year loan is to lock in your expenses, thus making the house more affordable over time."
Low-interest mortgages are good debt. The whole point of good debt is to free up your finances for investments that will pay returns that are higher than the loan rate.
"That same money, or a portion of that, could earn significant interest," Adams said.
Myth: The 'Ugly Kitchen' Discount
Buyers should indeed use the cost of necessary renovations as leverage, but only for matters of utility, not makeovers or upgrades.
According to Kirsten Jordan, a nationally ranked real estate agent and cast member on Bravo's "Million Dollar Listing New York," the so-called "ugly-kitchen discount" is a myth.
"When it comes to negotiating with a seller based on renovation costs, focus on necessity and function," Jordan said. "Don't get into aesthetics. A roof with six months left is a bargaining chip. An outdated kitchen in pristine condition is not."
Myth: It's Cheaper To Rent
Perhaps the most destructive homebuying myth of all is the one that says not to buy a home in the first place because you'll save money in the long run by renting.
"When working with first-time or younger homebuyers, we tend to need to debunk the myth that the cost of homeownership or buying a home is more expensive than renting," said Robert Esposito, director of sales at Miami-based real estate brokerage Related ISG Realty. "We have seen numbers across the country showing rental prices have skyrocketed, and depending on where you live, the cost to rent and buy could be considered equal. Sometimes, monthly mortgage payments are even lower than rent. Once a lender determines how much they can afford and the buyer puts all possible expenses on paper, monthly mortgage payments are the smartest choice."
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This article originally appeared on GOBankingRates.com: Housing Market 2023: 8 Myths About Getting Approved For a Mortgage
