Common Real Estate Myths
Common Real Estate Myths To Know About
Myths about real estate and homeownership have been around for a long time. These myths are passed along sometimes as common knowledge but when taking a little closer look, the facts do come to light. Check out some of the common myths and the reality of the situation in this article below.
Myth: Home Buyers Don’t Need a Mortgage Pre-approval Prior To Seeing Homes
With a home being one of the most expense purchases made in one’s lifetime, not knowing ahead of time the amount of money they can borrow to buy a home can lead to great frustration. Seeing a house that a buyer truly loves only to then find out it is out of their price range means a lot of wasted time and wasted effort. A mortgage pre-approval is an easy process providing the home buyer has all their paperwork ready to give to the mortgage lender. By getting a pre-approval ahead of time not only does the buyer learn the amount of mortgage they can get but other issues can be taken care of if they do pop up before any offer is made. Things like correcting credit report errors or simply paying down certain accounts the buyer can get a better interest rate and better terms which leads to big long-term savings.
As part of the mortgage pre-approval process the buyer will learn how much money they will need to bring down when purchasing a home based on the mortgage type. Sometimes this can be a large number (depends on mortgage type) and the buyer may not have all that cash ready to put down towards a downpayment. Which means if they do find a home they love and can’t come up with the downpayment money they can’t buy the home. By knowing ahead of time how much they need to save up to make their purchase they can tour homes accordingly.
Myth: Real Estate Agents Don’t Provide Value When Buying/Selling a Home
Some say buyer’s agents are expensive door openers and listing agents just throw a property on the MLS, put a sign in the yard and hope for the best. Just as with any field there are those whose contribution is not like others in the field. That is why ethics review boards for attorneys, doctors, accountants and real estate agents are always busy. But that does not mean the entire real estate profession is not useful.
The benefit from working with professional real estate agents comes from their network of other professionals they work with (mortgage lenders, home inspectors, contractors and more) and with their knowledge they bring to a transaction. Whether representing the buyer or the seller the experienced real estate agent needs to know the ins and outs of the transaction. From making sure timeframes are kept on track, negotiating on behalf of their client, to making sure someone is around to open the door for a contractor to evaluate and issue when no one else is available.
Myth: Owning a House Only Involves Paying the Mortgage
This myth is a dangerous one in that it can cause home buyers to only focus on the monthly mortgage payment. If the homeowner pays their taxes and insurance with escrow, then that number is sometimes not considered when looking at the principal and interest payment of the mortgage. Taxes and insurance are on top of the principal and interest payment and are variable, meaning they can and do change during the life of the mortgage (see below for more details).
If all the homeowner ever pays is the monthly mortgage payment (including escrow) and does not budget for any other home expenses they will be in for a big shock when home repairs pop up. Small home repairs such as squeaky doors, dripping faucets, and more can be taken care of at a relatively modest cost. Other things like HVAC repairs/replacement, roof replacement, major plumbing issues. replacing one or more windows can really add up. Not having saved up for such expenses can leave a homeowner with a big hole in their budget and/or expensive debt to cover those repairs.
Myth: The Mortgage Payment Never Changes
To be fair this can be true if the homeowner has a thirty-year fixed mortgage and does not consider the taxes and insurance in the mortgage payment. When adding in the taxes and insurance the mortgage payment can change on a year-to-year basis. Recently insurance rates have been going up due to inflation and that gets factored into many mortgage payments that include escrow payments. As home values have risen so have tax assessments, which again means a higher monthly payment going to the lender.
While not as common these days the variable rate mortgage also means the potential for the mortgage payment to change. As rates go up and the lock period on the variable rate mortgage opens, the payment can go up as well. In general, one should never count on having a mortgage payment remain the same.
Myth: Home Values Only Go Up
Maybe over a long-time scale and looking at large markets this could be true. But when looking at individual homes and individual markets, home values don’t always go up. Take a look at any neighborhood and look for that run down abandoned house. If the inside of the house is uninhabitable due to mold, water damage, animal infestation or more the value of that home is not going up.
Homeowners who defer maintenance or don’t update the home when other homes in the neighborhood are well kept and updated will not have its value go up relative to those other homes. Depending on the price paid when the home was purchased it could even be worth less. If a local market loses a major employer resulting in net migration away from that market, the homes in that market will go down in value due to lack of demand.
Myth: A Home is an Investment
A home should not be considered an investment. If the homeowner does not make updates, lets some maintenance issues go the home can quickly turn into a money pit. External factors such as a major employer leaving an area can also impact the home value negatively and through no effort of the homeowner at all.
Especially in today’s mortgage interest rate environment when paying an interest rate of seven percent the homeowner is paying more in interest than the original value of the home upon purchase over the life of the loan. So for example a $400,000 home with a seven percent mortgage interest rate will pay $446,428.47 in interest over the life of the mortgage. Investments should not cost more money than the original purchase price. With the way mortgages work the interest is front loaded as well on the amortization schedule which means more interest is being paid in the early time of the mortgage so even if one were to sell prior to the 30 years a lot of interest is being paid on that loan. With a high interest rate, home price appreciation might be the only way a home turns into a positive “investment” and that does not even factor in the cost to insure, maintain, and update a home.
Falling for some of these common myths can lead to long term financial struggles and buyer’s remorse. Sellers too can get caught up on the wrong end of these myths and leave money on the table. Knowing the truth can help real estate buyers and sellers keep achieve their goals successfully.
- Guide For Getting a Mortgage Pre-Approval - Mortgage pre-approvals should not be considered optional as shopping for a home without one can lead to big disaapointment. Learn about the mortgage pre-approval process and how to get pre-approved for a mortgage.
- Use a Realtor When Buying a Home? - Sometimes homebuyers think by going directly to the listing agent they can can a better deal and save some money. Usually the opoosite happens as the listing agent either represents the seller or has to step back and represent both parties equally which usually means no full representation for anyone.
- Selling a Home With a Bad Roof - While not ideal a home with a bad roof can still be put on the market for sale and will get buyers ready to make an offer. The important thing though is to price and market it right otherwise no one will be interested.
The above article “Common Real Estate Myths” was provided by Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
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