5 Pieces of Outdated Homebuying Advice That Your Parents Might Give You
When I was preparing to put an offer in on my first home, my mom, over the phone, was nudging me to come in under the list price. My real estate agent — who I knew was tenacious because she told me from the onset her favorite color was leopard — was blunt: That would be a horrible strategy and I’d likely lose the bid. Plus, it wasn’t worth haggling over the $5,000 to $10,000 that would be spread out over a 30-year mortgage, especially since my heart was set on the home.
In this case, mom — who is very financially savvy but last bought real estate before dial-up internet was around — didn’t know best.
As it turns out, the well-intentioned real estate advice parents relay is sometimes outdated or misinformed. Here, real estate experts share some of the worst (and most persistent) pieces of advice that family members share regarding homebuying.
The Bad Advice: Don’t pay the full price in your initial offer.
In a buyer’s market, you may be able to gamble and come in under the list price. But, in general, underbidding (as my own mom advised me to do) is an outdated strategy, especially in this ultra-competitive market.
“Paying the full price in your initial offer can help you score the home of your dreams, so don’t be afraid to go all in,” says. Beatrice de Jong, Opendoor broker associate and consumer trends expert. In fact, if there are multiple offers on a home and properties are flying off the market quickly, you may need to go a smidge over the asking price, typically 1 to 3 percent, according to The Mortgage Reports.
The Bad Advice: When checking out a property, don’t let the Realtors see that you like it.
Your family members may tell you to wear your best poker face to a showing or open house. The idea is if you show neutrality or disinterest, you’ll be able to negotiate a better price, de Jong says.
“However, in today’s hot housing market, this tactic may deter folks who would rather sell to someone who is clearly passionate about that particular home,” she says. “After all, sellers want certainty that a buyer is motivated to close on the home.” She suggests being honest about how you feel about the space. “Acknowledge what you love about it while being forthright about its shortcomings,” de Jong says.
The Bad Advice: Buy something you can see yourself living in for years.
Your first home doesn’t have to be your forever home, says Liz Coughlin, who co-owns HD Properties LA in Palm Springs and Los Angeles. In fact, in many markets where homes are expensive, this isn’t realistic advice, she says. But if you’re in an area where homes tend to appreciate over time, it’s a good idea to start small in a starter home that you can comfortably afford, she says. “Update over time, gather equity, then move up to your next property that suits your next life stage,” she says.
The Bad Advice: You need a 20 percent down payment or else you won’t be able to afford a home.
Larger down payments have some advantages. They can help you avoid paying private mortgage insurance (or PMI) and they can translate to lower monthly mortgage payments. But did you know that, according to the National Association of Realtors, the overall average down payment is 12 percent, and that the average first-time buyer puts down 6 percent?
If you can’t wait to get into the home of your dreams, but don’t yet have 20 percent down, consider looking into an FHA (Federal Housing Administration) loan, which is backed by the government, suggests Andy Taylor, GM of Credit Karma Home. FHA loans allow borrowers with down payments as low as 3.5 percent to qualify for home loans, if their credit scores are 580 or higher. Borrowers with scores between 500 and 579 will be on the hook for a minimum 10 percent down payment, he says.
The Bad Advice: “You should use the same lender we used.”
Mortgages aren’t one size fits all, so it’s always smart to shop around for your mortgage, Taylor says. “Anyone shopping for a mortgage should compare rates and terms from different lenders,” he says. Spending the extra time shopping around could save you tens of thousands of dollars over the course of a loan. Taylor suggests getting quotes from a handful of lenders before you commit to a new loan.
If you’re worried about multiple requests or inquiries dinging your credit score, understand that any impact to your score will be small, and you can minimize any negative impact by shopping in a short period of time, Taylor says.
“Complete your mortgage shopping in 14 days, and when multiple lenders request your credit score within that time, it will only count as a single inquiry,” he says. That window could be as much as 45 days but the rules can vary depending on what scoring model lenders use, so 14 days is the recommended safe bet, according to Taylor.