Don't be fooled by these common home-buying myths

Some people think they know everything about buying a home. But it’s a dynamic industry that the average consumer might only encounter once every several years, so what they think they know is incorrect or outdated information.

For instance, many still believe you need a 20-percent down payment to buy a house. Other preconceptions laypeople might be surprised to learn are: Interest rates have not gone up this year, location isn't the only important factor, real estate won't make you rich in a hurry and you can't buy a home without a lot of paperwork.

For answers to all your homebuying questions, talk to a licensed loan officer today for more information.

Myth: You must have a 20-percent down payment to buy a home.

Fact: Many people buy a home with a down payment of just 3.5 percent of the home's purchase price. Some buy with only 3 percent down, and others buy with no down payment at all. If you don't have 20 percent, you'll have to pay for mortgage insurance or you'll have to pay a funding fee that can be financed as part of your loan. Either way, the notion that you need 20 percent simply isn't true.

Myth: Mortgage interest rates have gone up this year.

Fact: The Federal Reserve raised its federal funds rate, an interest rate used primarily by banks, in December 2015. The Fed's increase had very little effect on mortgage interest rates, which have been low for many years and are still attractive. Low rates make buying a home more affordable than you might expect. In many cities, owning can be cheaper than renting.

Myth: Location is the only important factor when you buy a home.

Fact: "Location, location, location" is not actually sound home-buying advice. In fact, it's just the punch line to a very old and quite stale joke. While location matters, the home's condition, floor plan, square footage, lot size, price and amenities are also important factors you should consider. The best way to choose a home is to make lists of your own needs and wants, including location, and when you find a home that gives you those benefits, buy it.

Myth: Buying real estate is the best way to get rich quick.

Fact: A home can be a good investment, but there's no guarantee that your home will become more valuable over time. More likely, the value will keep up with inflation over the long term and you'll gradually build equity as you pay off your mortgage. You might build equity faster if you pay extra and tell the lender to apply the amounts to principal. You might build more slowly if you refinance with a longer term. If you sell your home, part of your equity typically will be used to pay your transaction costs. For some people, this opportunity doesn't make sense. For many others, it does.

Myth: You don't need to do a lot of paperwork to buy a home.

Fact: Government regulations require that lenders assess your ability to make mortgage payments before they give you a loan in most cases. That means you'll have to supply documents - potentially a lot of documents - to show you can afford a mortgage payment. The best approach is to cooperate as quickly and fully as you can with documentation requests. Otherwise, you probably won't get the loan you want.

Published March 31, 2016

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