Myth 1: I shouldn’t buy until the real estate market has hit the very “bottom.”
Answer: It is impossible to sharp shoot the “bottom” of any market. Just as the “top” of a market is identified after the “bubble” has burst, a “bottom” is identified after it has come and gone, and in the midst of prices or values going up, and going up fast. While none of us can predict the exact day, month, and/or year of the “bottom”, we can all be very confident in the knowledge that at the current time we are well off the “top”. Now is the time to consider buying.
Myth 2: I heard interest rates will be going much lower. I should wait until that happens before I start the process of purchasing a new home or refinancing my current mortgage.
Answer: Waiting for the “bottom” of the interest rate markets is just as difficult to determine as waiting on the “bottom” of the real estate market; however, trying to sharp shoot interest rate lows could, in the end, be more costly and dangerous. History shows us that when rates turn in the wrong direction and start going up, they do so very quickly, and you can suddenly find your anticipated mortgage payment out of your affordability range, thus preventing you from buying a new home. While the government, the Federal Reserve, and the rest of us would like to see long term rates fall to further, it is impossible for the government and/or Federal Reserve to guarantee that it will happen. The reason is that the nature of mortgage rates are derived from the security markets, so it is wise that you act now and take advantage of the lowest interest rates in 50+ years.
Myth 3: To purchase a home in today’s market, I need to have at least a 20% down payment.
Answer: Absolutely not. The Federal Housing Administration (FHA) only requires a minimum 3.5% for a down-payment, at the very best interest rates. Furthermore, there are still a number of organizations, private and public, that are assisting buyers with the 3.5% down payment, enabling many folks (especially first-time homebuyers) to purchase a home with as little as $1000 out-of pocket. Furthermore, if you are a Veteran, or live in a rural area, VA loans and USDA loans do not require a down-payment at all and offer 100% financing at the very best interest rates.
Myth 4: I can’t purchase a home in today’s market because my credit is not absolutely perfect.
Answer: Not true again. FHA has always approved applicants and borrowers’ with less than perfect credit, even with recent bankruptcies, foreclosures, collections and charge offs. FHA offers the very best interest rates and provides borrowers with the opportunity to take advantage of the aforementioned down-payment assistance programs.
Myth 5: It is a horrible market to sell my home, so I should not even consider selling my current home and purchasing a new home.
Answer: Not necessarily. It depends upon where you live. Contrary to the many parts of the country, the Denver Metro area is a very healthy and stable market. If you’re a homeowner who wants to trade up, the loss you’ll take on your current home (if any) could be more than offset by the bargain you’ll get on the new home you purchase. Remember, interest rates are at a 50 year low. When the economy starts to recover, they will go up. This is another reason to consider trading up in this market.
Myth 6: When I am negotiating with a seller on the purchase of my new home, I should focus simply on buying the home as cheaply as possible and disregard any offers of concessions for financing by the seller of the property.
Answer: Closing Costs are a significant portion of the cash that is required for you to purchase a property. Depending upon the purchase price, it is possible for closing costs to run anywhere from 3% to 6% of the purchase price. It’s important for you to be aware of these costs and determine whether you will pay for them by writing a check at closing or have the seller pay them as part of your agreement to purchase the property. Most lenders/banks will allow the seller to pay closing costs with certain limitations. This is the by far the most overlooked benefit buyers have at their disposal, especially in this market. Oftentimes, you can get much more bang for your buck if you allow the seller to pay your closing expenses vs. negotiating on price.
Myth 7: The best strategy to get the very best deal on my new loan is to shop interest rates and fees over a number of mortgage companies and/or banks.
Answer: While this strategy was very easy in the past and a prudent approach, you may need to take a different approach in today’s climate. In the past, you would have had numerous choices when shopping rates. Competition was fierce, and credit was loose, so that made obtaining a loan very inexpensive and easy to shop for lower interest rates. Since the mortgage melt down, competition is not as fierce, and credit is very tight. Movements in the interest rate markets have been so volatile over the last year that, should you receive a quote in the morning of any particular day, the quote could very well be no good by the end of the same day. You would have to receive quotes from each mortgage professional and/or company you are considering on a daily, maybe even hourly basis, should you want to make your mortgage decision based solely on an interest rate. In today’s market, you need to interview the prospective mortgage professionals in order to determine who will be best suited to meet your overall wants and needs at the highest level. Be sure to ask the professional what tools and resources they rely on that will insure that they will be getting you the overall lowest cost loan. More importantly, make sure the professional has a company behind them that has the staff and systems in place to insure that the process goes smoothly, closes on time with anticipated terms, with no surprises, and funds your loan at closing. There is little worse than arriving at your closing only to discover the money is not there.
Myth 8: I shouldn’t buy in today’s market since I run the risk of losing money on my investment.
Answer: Location, location, location. The Denver Metro real estate market did not experience the massive appreciation rates that markets like Las Vegas, Phoenix, and the coastal markets of Florida and California did. So, in turn, the Denver Metro markets did not, and are not, experiencing massive declines in value like some other locations. Also, remember that there are advantages of homeownership other than equity appreciation. You are able to deduct a portion of the interest paid on your mortgage, as well as your property taxes, and mortgage insurance, if applicable. Owning also means you can do what you like with the property, paint the walls any color you like, build a deck, landscape any way you wish, a luxury you do not enjoy as a renter.
Myth 9: When selling my home, I should never accept the first offer as it is never the best offer.
Answer: Most Sellers believe that the smart move is not to take the first offer, and hold out for something better. However, more times than not, the first offer is usually the best offer. Most real estate agents agree that the most important time for getting the best possible price for your home is in the first couple of months. If a home is priced correctly, you will attract the more sophisticated real estate agents who know how to spot a strong deal for their buyers. This will insure that your home sells quickly. This will save you a lot of money in the long run.
Myth 10: I should list my home higher than my competition since this will insure that I get top dollar for my home. I can always reduce my price later.
Answer: Sellers often price their homes high for a few weeks just to test the market. However, buyers shop by price bracket. If your home is in the wrong one, you will be actually be helping everyone else in your neighborhood sell their home while yours sits there overpriced. Reducing your price later and in small increments puts you in the position of chasing the tide as it goes out.
Christian Durland
Cherry Creek Mortgage
