6 Home Buying Myths That Waste Time and Money

You’ve decided to buy a home. Friends, family, even coworkers and random acquaintances are offering their advice. Not all of it will be true.

They mean well, but what worked for someone else may not be the best option for you. Plus, there are plenty of widely believed myths surrounding home buying. Falling for them can actually make it harder to find the right place.

Here are some of the most common myths and why you shouldn’t believe them.

Myth #1: You need a 20% down payment

This myth can stop potential homebuyers cold. The median listing price in the U.S. is $385,000. You would have to have $77,000 readily available if you wanted to make a 20% down payment, an amount that can be daunting for a lot of people.

“It’s one of the biggest myths out there,” says John Mallett, founder of mortgage broker MainStreet Mortgage. “It stops more people from entering the market or even seeing if they can qualify.”

In reality, 20% down is more of a guideline than a hard and fast rule. In fact, the average down payment equals 12%. For first-time buyers it goes down to 7%.

Government-backed options, such as FHA loans and USDA loans, can be secured with as little as 3.5% down. If you are a member of the armed forces or a veteran and you qualify for a VA loan, you can buy a home with 0% down.

Conventional loans also don’t require a 20% down payment, but with less money down you will generally need to pay for private mortgage insurance. PMI costs 0.5% to 1% of your loan amount per year and is paid in monthly installments. So, if you have the money to pay 20% down, however, it can make sense to do it. Having more equity also protects you if home values fall.

You can also apply for a number of different grants and homebuyer assistance programs that can provide money for a down payment. These programs can include grants, forgivable loans and second mortgages that can provide partial or full down payment help. (Brokerage Redfin has put together a list of down payment assistance programs available nationwide and by state.)

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Myth #2: You should definitely get a 30-year fixed-rate mortgage

The 30-year fixed-rate mortgage is popular for a reason. The fixed rate means predictable payments, while the long payback period means relatively low payments.

However, it’s not your only option and it pays to evaluate different types of loans to see which one best fits your needs. In many instances, a 30-year mortgage will be more expensive in the long run.

For example, if you are more interested in paying the mortgage off faster and can afford higher monthly payments, you might want to consider a 15-year fixed-rate loan.

These loans will usually have lower interest rates than 30-year loans (the average rate for a 15-year mortgage has been below 2.5% since last summer). By paying a lower interest rate over a shorter term, you’ll save money despite higher monthly payments.

An adjustable-rate mortgage may be worth considering if you don’t plan on staying in the home for long. Some ARMs will have very low interest rates during the initial fixed-rate period, which can save money. Though if you do not sell or refinance before the rate becomes variable, you could face a much higher rate and monthly payments.