Buying a home sounds simple in theory, but there are many misconceptions that can make the process complicated and difficult to navigate. To help you avoid some of the most common home-buying pitfalls, Mareijke Weidemann and the East Bay real estate professionals at Homes With M are here to debunk a few popular myths. Find out the truth below, then check out our listings to discover your dream home in the Bay Area!
Myth 1: You Need a 20% Down Payment Before You Can Buy a Home in the Bay Area
Many people think that they need to save up a large amount of money to buy a home, but this is not always the case. There are many loan programs that offer low or no down payment options, such as FHA, VA, USDA, and conventional loans with private mortgage insurance. My personal favorite is the 80-10-10 loan. With this flexible loan option, you put a down payment of 10% and the lender will lend 80% as a first mortgage, plus a HELOC (home equity line), which bypasses PMI altogether. Depending on your credit score, income, and location, you may qualify for one of these programs and buy a home with as little as 3% or even 0% down. California also has several first-time homebuyer down payment assistance programs that will help you with your down payment and closing cost, if you meet certain income requirements.
Myth 2: Private Mortgage Insurance Must Be Avoided Even if It Means I Have To Wait To Buy a Home
Some people may think that they need to avoid private mortgage insurance (PMI) at all costs because it is an extra expense that does not benefit them. However, PMI is not as nearly as expensive as it used to be in the early to mid-2000s. PMI costs between $80-$150 per month depending on the loan size and loan type you get. On an $800,000 home purchase in the Bay Area, you will gain $40,000 in appreciation in 1 year (5% long-run average appreciation rate in the Bay Area), compared to $1,200 in annual PMI. PMI costs a tiny fraction of the equity you will gain every year you own that home. And PMI is removed as soon as you get to 20% if you have a conventional loan, so it’s temporary.
Myth 3: Timing the Housing Market is Crucial
Instead of trying to time the housing market, you should focus on being in the housing market. This means buying a home that fits your needs and budget, and keeping it for the long term. This way, you can enjoy the benefits of homeownership, such as tax deductions, equity build-up, and appreciation, and avoid the costs and risks of renting. You can also lock in a fixed housing payment, which can save you money over time. For example, if you bought a home in the San Francisco Bay Area for $500,000 in 2000, it would have been worth $2.1 million in 2020, based on the average annual home price increase of 7.4% since 2000. That is $1.6 million in wealth that can be built if you take the appropriate long-term view of your home.
Myth 4: You Need Perfect Credit To Buy a Home
Another common misconception about buying a home is that you need perfect credit to qualify for a mortgage. While having good credit can help you get better interest rates and loan terms, it is not a requirement for homeownership. There are many loan programs that cater to buyers with less-than-perfect credit scores, such as FHA loans, VA loans, USDA loans, and some conventional loans. Don’t let your 660 credit score stop you from buying a home. There’s a loan program that qualifies you at that score, too!
Myth 5: You Can Save Money by Working With the Home-Seller’s Agent
Working with the listing agent who represents the seller may seem like a good idea to buy a home. You may think that you can save money, avoid commissions, or negotiate better. However, this is a risky and costly mistake for several reasons. The listing agent’s loyalty and duty are to the seller, not to you. They will not share any information that could help you or hurt the seller, such as the home’s value, defects, or issues. They will also try to get the best price and terms for the seller, not for you. By working with the listing agent, you are giving up your right to have someone represent and advocate for you. Remember, the seller has already agreed to pay your buyer’s agent’s commission, so there’s no benefit to working with the seller’s agent — they will just keep both sides of the commission.
Having your own real estate agent in the Bay Area can make your home-buying experience easier, faster, and most importantly, help you avoid sleepless nights! They can also help you avoid costly mistakes and pitfalls that could jeopardize your investment by guiding you through the process and helping you manage the risks associated with purchasing a large asset like your home. Plus, when they know the East Bay’s housing market as well as Mareijke does, they can help you make the best decisions to ensure your home’s value and longevity.
Buying a home is one of the biggest financial decisions you will ever make. It can be exciting and rewarding, but also challenging and stressful. That’s why you need to be well-informed and prepared before you take the plunge. Don’t let these common misconceptions about homeownership hold you back or misguide you. Do your homework, consult with professionals, and make smart choices.
If you are ready to take the next step towards homeownership, we are here to help. Contact Mareijke today for a strategy call to get your game plan mapped out. We will guide you through the entire process and help you achieve your dream of owning a home in the Bay Area!