10 Real Estate Urban Legends That Need to be Left in the Past
Buying a home is the dream of many people, but, as with anything, there are certain myths around home ownership that should be dispelled prior to purchase. According to the Local Records Office in Indiana, IN, buying a home is expensive and you don’t want to make a mistake due to false expectations or miscalculations.
This could be anything from tax benefits to the benefit of building equity and rising home values. In this article, we’ll go over the top 10 myths that surround homeownership and explain why they’re false. Hopefully, this information will give you the foundation you need to make a wise purchasing decision.
1. Better Off Buying Than Renting
The common adage that you are better off buying a home instead of renting a place to live is often true, but not always. It’s all a matter of math, which is also influenced by other factors such as willingness to save and invest, or the potential cost of maintenance and repairs. Plus, you have to factor in the length of time you plan on staying in a home if you are buying it.
Paperwork and process costs can not only eat into any appreciation you might have experienced over the life of ownership, but it could even plunge you into the red which means that you actually lost money by living in that home for such a short period of time.
Determining whether buying or renting is better for you is a journey that you should start with a certified financial advisor and let them help you figure out what is best.
2. Taxes and Insurance
One common misconception about renting is that renters do not pay taxes and finance charges. But this isn’t the case. These fees should be baked into the rent and rent should, at a minimum, cover any monthly mortgage payments and some of the taxes on the property if you are a landlord.
Yet, simply because these costs aren’t broken out separately from rent, many people have the misconception that homeowners are taking upon themselves extra or added costs that renters do not have. They do, they’re simply paying these costs for someone else in a lump sum every month.
3. You Need 20% Down
Another common misconception is that you need to have 20% of the asking price down in order to get a mortgage or loan. There are actually a variety of loan packages and even government programs that allow for as little as 3% down.
Finding the right mortgage for you does take some research but homeownership is encouraged rather than discouraged by the lending market. As such, you are bound to find a loan package that fits your situation.
4. You’ll Make More Money in Stocks/Owning a Home
With most of these myths, you’ll notice that we dispel them simply by pointing to nuance or the “grey areas” in life. This is another one of those. Often the worst advice tries to make situations that are unique and complex into universal truisms that apply in all cases.
For example, the idea is that owning a home is ALWAYS better than renting. This is a complicated question and one that involves a lot more math and insight than a simple single sentence can encompass. The same goes for the question of whether you will make more money owning a home or investing in the stock market. This boils down to things outside of your control, like the market and the quality of your investments, as well as things within your control, such as your ability to save and invest on a consistent basis no matter what the market is doing.
Then there’s also the most crucial aspect of all: Timing. If humans lived in terms of hundreds of years, then a market investment would probably always triumph over being a physical asset. But since humans have to work in terms of decades, timing becomes one of the most critical aspects of investing that is rarely discussed.
There are two main aspects: How soon you start saving and investing and for how long. For there’s also the fourth: When you get out of the market.
The market has ups and downs, and this is true, but if you have to exit the market due to retirement or illness at a time when it is down, you could lose out on a lot of money. Imagine retiring in 2008 and 2009, for example, as opposed to ten years later.
You have a completely different stock market in those ten years and much of the wealth lost in the collapse has been recovered since. But if you had to retire or otherwise cash out your shares then, you missed out or, in other words, you lost out on a ton of money. With a home, all of this is different.
You can more accurately time your exit from an investment in a home if you need to downsize but you cannot rely upon appreciation in it to make you money in quite the same way as a stock.
5. Owning a Home is an Investment
This can be true if you own multiple properties but it is not advisable to look at your primary residence as an investment. Why? Because it fulfills a needed function for you in that it provides you with shelter and places to sleep.
This has a market cost that you have paid for and continues to pay for though it might be much less now than it was when you owed money on it. Think of it this way: Is food an investment?
Perhaps it is an investment in your health, but, unless you’re a vendor of food products or a farmer, food is a necessity of life that gives you ancillary benefits such as the ability to make money. As such, it is a utility – like the electric bill.
There’s no doubt that you should be wise in what kind of home you choose to buy and where it is and how long you will be there. You want it to increase in value over time and you hope to get more out of it than you put into it. But never forget that your primary home’s fundamental purpose is to provide you with shelter and as such should be regarded more like a utility than a financial vehicle.
According to a report by the Local Records Office investing in real estate in Indianapolis, IN is paying off BIG. Homebuyers and home sellers are both gaining from this real estate boom.
6. Homeownership is the Best Way to Build Wealth
Homeownership helps you build equity in your home which gives you access to cash upon selling it. It is a component of building wealth but it is not the primary means to becoming wealthy. If you read about most millionaires, they succeeded through business and entrepreneurship, not because they owned a home instead of renting.
7. All You Need is a Down Payment
Without getting into the nitty-gritty of homeownership, you need way more than a down payment to get home. You also need to have the right mindset and one that is ready to tackle the multiple responsibilities that come with owning your own home.
8. You Need Perfect Credit
Another myth of buying a home or at least attempting to do so is that you need perfect credit. This isn’t the case though you might end up paying substantially more for a loan than someone with good credit. In that case, it might behoove you to undertake a program of improving your credit in order to get the best rate possible but, more often than not, most credit levels can get a mortgage.
This is because a mortgage is a secured loan as opposed to an unsecured loan and the lender thus has greater recourse for recovering any money lost on the loan in case of default.
9. Mortgage Rates Are High
The interest rate you receive on your home loan is determined by a lot of factors, including your credit, but mortgage rates are actually at historic lows right now – especially when compared with the market in the 1980s.
10. You, Will, Lose Your Home If You Miss a Payment on Your Mortgage
One common scaremongering tactic that people use to dissuade another person from getting a mortgage is the belief that you will have your home seized if you miss a payment. This isn’t the case. You actually have to be quite in arrears, or default, in order to have the foreclosure process initiated.