5 Myths That Are Probably Fueling Your Homebuying Fever
It feels like all anyone can talk about right now is buying a house. From news headlines blaring about the sizzling hot housing market to friends posting cutesy Instagram photos of themselves holding the keys to their new home, real estate is everywhere these days.
Good or bad, this homebuying fever can create a lot of pressure to buy a home right this very instant. If you’re feeling the crunch yourself, here are five myths that may be contributing to your homebuying angst — and why you don’t necessarily need to drop everything and start house-hunting.
“Everyone else is doing it.”
When all of your friends are taking a major life step like buying a house, it’s all too easy for your brain to start whirring about how you, too, obviously need to buy a house right now. Easier said than done, but it’s important to remember that everyone’s circumstances are different and what you see online may not paint the entire picture. Yes, the FOMO is real, but try to stay squarely focused on your own goals, lifestyle, and budget instead of comparing yourself to others.
“While social media might portray your friends all on a homebuying spree, remember that this is a self-selected group of folks showing off their purchases who often have parental financial support in their corner,” says Michael Glenmullen, a real estate agent in Cambridge, Massachusetts. “For every #firsttimehomebuyer, there are plenty of your friends who are still renting.”
“Home prices will just continue to increase and I’ll never be able to buy in the future.”
Yes, home prices rose dramatically over the last year and a half. You might be panicking at the thought that prices will only continue to increase and, eventually, they’ll be so high that you’ll never, ever be able to afford a house.
No one has a crystal ball to peer into the future, unfortunately, but regardless of what the market is doing, you should strive to buy a house that fits into your individual budget. If you overextend yourself to buy a house now, you may be putting yourself in a tough spot financially in the future.
“It’s better to buy at a price that you feel most comfortable with and not feel pressured by outside market conditions to make a very important decision like buying a new home,” Glenmullen says.
“Renting is throwing away money.”
You’ve probably heard this oft-repeated personal finance trope. And while it’s true that paying rent to a landlord means that you’re missing out on long-term equity growth and appreciation, it’s not always so black and white.
Principal and interest aside, the actual process of buying a house can be expensive, with thousands of dollars in fees and underwriting costs that you’ll never recoup. If you think you could be moving to a new area soon or you know you’ll want to upgrade to a different house in a few years, then buying a house right now may not be the most financially savvy move, says Peter Riolo, a real estate agent in New York City.
“Often, people rush to buy a home so that they can just shed the burden of rent,” he says. “It is true that renting does not create any long-term financial value, but buying a home you have to sell in a year or two does not guarantee appreciation and the transaction costs can leave you in the red if you move too soon. Your first-time homebuying experience should start with a financial plan to make sure you are ready to buy, and that you have set clear goals for your homeownership as part of your overall financial strategy.”
“I can afford it.”
We’ve all done it: While looking at the perfect house on Zillow, you scroll down to check out the “estimated monthly cost” section. “Ah, that’s not so bad. I can totally squeeze and pinch to make that work,” you think.
In reality, your monthly payment may be significantly higher or lower depending on a host of factors — the size of your down payment, the interest rate, property tax hikes, and more. In short, the only way to know for sure what you can and can’t afford is to talk to a lender (or several).
“I have clients who will quote a mortgage calculator and be surprised when the number changes dramatically,” says Ryan Renner, a real estate agent in Omaha, Nebraska. “Those numbers can be way off. You need to make sure insurance and taxes are included in that payment. In addition, those calculators are using a 20 percent down payment and usually an extremely low interest rate that may not be achievable for many people. If you want to get an accurate monthly payment, there is no substitute for talking directly with a lender.”
“Interest rates will go up soon.”
While it’s true that interest rates are at historic lows right now, that doesn’t mean you should immediately dive into buying a house. They may increase soon, or they may stay low for months (maybe even years) to come. Either way, the interest rate a lender is willing to give you depends on a whole host of factors, including your credit history and the size of your down payment.
And though getting the absolute lowest interest rate possible will certainly save you money over the long run, it shouldn’t be the only factor you consider, Renner says. Buy a house when all of your financial ducks are in a row, and no sooner.
“If you spend a year working on your credit and building up a bigger down payment, you may be able to offset the costs of a higher interest rate,” he says. “This could also help you avoid private mortgage insurance and give you more of a cushion for any surprise expenses that come up when owning a home.”