Every REALTOR® worth their salt has heard plenty of incorrect theories about the home buying process. We want to debunk some of those for you, to help make the buying process easier, arming you with more knowledge so you can make the right decisions for YOU! Below are just a few misconceptions we have heard along the way, so stay tuned for next week’s Buyer Misconceptions Part 2!
Misconception #1: Buyers Have To Pay Their REALTOR’S® Commission
I have had buyers tell me they can’t afford to have an agent or ask me how much they owe me. The fact is – both seller and buyer agents get paid out of the seller’s net proceeds at closing! Sellers pay buyer agents for bringing the buyer in order to effect a sale. The only time this may not happen is if you are buying a for sale by owner (FSBO) property, but this is still a rare occurrence. Most FSBO sellers recognize the fact that most buyers come with a REALTOR and they find it easier than dealing directly with a buyer – so they are willing to pay the buyer agent commission in order to get the job done!
Misconception #2: You Should Use The Listing (Seller’s) REALTOR®
We hear it all the time – a potential buyer only wants to deal with the listing (seller’s) agent because they think they will get a better deal. In reality, that buyer is doing themselves a disservice! You won’t usually be getting a better deal on price if you do not use a REALTOR® (or just use the seller’s), because the seller still owes a total commission regardless if another agent is brought or that same agent works both sides. The seller’s agent is also first and foremost concerned with the seller’s well being, whereas if you had your own agent you would have a free advocate for yourself that truly knows the ins and outs to protect YOU. The buyer’s agent can also obtain all the same information on the property and answer any questions you may have while assisting with negotiations.
Misconception #3: You Have To Have 20% Down To Get A Loan
Those days are long gone! VA loans of course have 0% down, but don’t worry if you can’t go VA. There are some conventional loans with as low as 1% or 3% down in certain circumstances. The most common loan types are 3.5% down FHA, 5% down conventional (if it is to be your primary residence), or 10% conventional (if it is a second home). You really only run into 20% down or more on certain condo associations or investment properties.
Misconception #4: Pre-qualification Is The Same As A Pre-approval
Some buyers will just fill out a quick questionnaire online or a lender asks them a few brief questions on the phone and then spits out a pre-qualification letter. In this scenario none of your information is actually verified or examined, sometimes credit scores are not even pulled, etc – so there is still a good chance you could not qualify for what you think. A pre-approval letter is where it’s at – this shows that you have had your documentation verified, credit pulled, debt to income examined, and that you can actually afford to purchase what you are offering on. This truly benefits you as the buyer so you do not get your hopes up on a home you can’t buy, and the seller will take a pre-approval letter more serious than a pre-qualification – especially in the ever common multiple offer situation.
Misconception #5: It Is Better To Use A Big Box Bank
A lot of buyers start off by calling the “Big Box Banks”, especially if they have banked with them forever. But honestly (and any agent will tell you this), it is not cheaper and you will get better service from a smaller lender (bonus if they are local!). It really doesn’t matter that you have previously banked with them either – they will still require all the same documentation from you. A lot of the bigger banks have multiple departments too so you do not have the same contact person throughout the process; it is easier to get lost in the shuffle and have information not conveyed, etc. Ask your REALTOR® for a recommendation and they will be sure to give you their most trusted, professional lenders that have done a great job in the past for their customers.
Misconception #6: It Is Cheaper To Rent Than Buy
This is a big one folks. A lot of buyers think it is cheaper to rent than it is to own. In reality, a lot of the times monthly mortgage payments are actually cheaper than rent (and you have the added bonus of building equity in your home for when you go to sell on down the road)! If you think about it, owners are pricing rent higher than what they owe on the actual mortgage so that they make a profit, so why not be the owner instead?