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Don’t Fall Victim To These Mortgage Myths When Buying A Home

The American dream may no longer include home ownership for many millennials, but there are still plenty of people out there willing to drop five to six figures for digs of their own. The only problem? There are also plenty of mortgage myths that cause people to lose money in the pursuit of becoming homeowners.

We talked to seven financial experts to find out what they believe are the biggest mortgage myths and what prospective homeowners need to know.

Myth 1: Interest rate and APR are the same thing.

Truth: When shopping around for a mortgage, interest rates are one of the most important factors to compare. Getting the lowest rate possible is key; even a difference of 1 percent can either save you or cost you tens of thousands of dollars over a 30-year mortgage.

But a more important measure is the annual percentage rate, or APR, said John Pak, a certified financial planner and founder of Otium Advisory Group in Los Angeles. Although the interest rate on a mortgage determines how much you’ll pay on a monthly basis based on the loan amount, “The APR is the rate that gives you clues as to what fees are included in the loan terms,” Pak said.

That’s because the APR represents the aggregated cost of doing business with the lender, according to Pak. “It includes the interest rate, discount points (if applicable), broker fees and closing costs, to name a few,” Pak said. “While the interest rate simply tells you how much your monthly payments will be, the APR is a great tool to compare overall fees charged by different lenders as you shop around for financing.”

Myth 2: It’s always better to own a home than rent.

Truth: Many people want to own a home because it’s considered an investment, whereas renting is often thought of as throwing money away. But in today’s post-Great Recession world, owning a home is no longer a sure bet.

According to Samuel Deane, co-founder of Deane Financial in New York City, there’s no doubt home ownership can offer plenty of advantages, including the chance to grow equity and claim tax deductions. But on the other hand, homeownership can present unique financial challenges that renters don’t have to deal with.

“Unlike renting, homeowners can also be burdened by maintenance costs, property taxes and the [lack of] flexibility to move to a new city for a great job offer,” Deane said. Plus, recent tax law changes have made it tougher to take advantage of mortgage-related deductions (more on that next).

For millennials especially, “It probably makes more sense to improve your credit and savings before taking the big leap of purchasing a home,” Deane said. In other words, there’s no shame in renting ― and sometimes it makes more sense than buying.

Myth 3: Buying a home is worth it for the tax deductions.

Truth: It’s true that homeowners are eligible to write off expenses related to their mortgages at tax time, including mortgage interest and property taxes. Although that’s a great perk of home ownership, it certainly isn’t the only reason to buy.

One thing to keep in mind is that tax deductions on mortgage interest and property taxes don’t cut your tax bill dollar-for-dollar; they reduce how much of your income is taxed. Your actual savings will probably pale in comparison to how much you spent on your house.

“Take, for example, someone in the 25 percent tax bracket,” said Scott Vance, a financial planner and owner of tax advice site TaxVanta. “If they itemize $10,000 of mortgage interest and taxes, they will only reduce their [taxable income] by about $2,500,” he said, noting that’s just a rough estimate.

Vance also pointed out that due to recent tax law changes, it will be a lot tougher to itemize and take advantage of mortgage write-offs at all. That’s because for the 2018 tax year, the standard deduction was raised to $12,000 for single filers and $24,000 for married couples filing jointly.

“Probably about 90 percent of my tax clients who itemized this year, largely because of the mortgage interest deduction and property taxes, will not exceed the standard deduction for 2018,” Vance said.

Myth 4: You can afford the loan amount you were approved for.

Truth: You’d think that the bank wouldn’t let you borrow more money than you can afford, right? Think again.

“A mortgage lender is not concerned about the cash flow it takes for you to save for retirement, pay for daycare or private school, save for your kid’s college education, a vacation etc.,” said Lauren Zangardi Haynes, a certified financial planner and owner of Spark Financial Advisors in Richmond, Virginia.

In other words, your mortgage lender wants to make sure you can pay back the loan, but they’re not necessarily concerned about how that mortgage payment will impact your other financial goals.

“Owning a home is an important goal for many people, but it’s usually not their only goal,” Haynes explained. “Take a minute to really see how a new home payment would fit into your budget and include all of the ancillary expenses as well [such as] insurance, taxes, maintenance, higher utility bills, yard upkeep and HOA dues.”

Myth 5: Once you’ve been pre-approved, you’re done.

Truth: Getting pre-approved for a mortgage can simplify the whole home buying process. But just because you were approved doesn’t mean you’re in the clear.

Ashley Foster, a certified financial planner and owner of Nxt: Gen Financial Planning in Houston, Texas, had one client who was pre-approved for a mortgage but unexpectedly decided to change jobs before the final approval was given. “The client experienced several weeks of unemployment, and during that time, the lender asked to check their finances,” Foster said. “The borrower had to state that they were unemployed, and the lender almost denied the mortgage application,” he added.

Fortunately, after writing a letter to the lender explaining it was a temporary change and he had a job offer, the buyer was approved. “It was a nightmare,” Foster said.

So even if you are pre-approved for a mortgage, it’s important to not make any changes that could affect your employment, income or credit until those keys are in your hand.

Myth 6: You need a 20 percent down payment.

Truth: A longstanding rule of home ownership is that you need to save up a 20 percent down payment before taking on a mortgage. But many financial experts are challenging that rule.

The problem is that earnings often don’t keep pace with skyrocketing home values, especially in high cost of living cities like San Francisco and New York. For the average person, trying to save up 20 percent might be like running on a treadmill. Sometimes taking on a bit more debt or temporarily paying private mortgage insurance is the only way to realistically afford a house.

“A client believed that putting 20 percent down to avoid private mortgage insurance was the only way they could buy a home,” said Lucas Casarez, a certified financial planner who runs his firm Level Up Financial Planning virtually from Fort Collins, Colorado. “After digging into it and showing a few different calculations, I was able to open up their perspective that purchasing their first home does not have to be light years away, and they don’t have to eat ramen just to make that dream happen.”

Myth 7: Paying off your mortgage is always a good idea.

Truth: Living a debt-free free life is an admirable goal. But if you have a mortgage, it might not be the most prudent.

“With mortgage rates being relatively low, a mortgage allows buyers to leverage their money,” said Charles Horonzy, a certified financial planner, a certified public accountant and founder of Focused Up Financial in Chicago.

For instance, Horonzy gives the example of a $300,000 house and mortgage rate of 5 percent.

“Instead of paying $300,000 [with cash] and having no mortgage, you get a mortgage for $240,000 and pay $60,000 (20 percent down),” Horonzy said. “You now invest the $240,000 in the market and potentially earn 8-10 percent in return.”

“In this case, you’d leverage the money you have to earn an additional 3 to 5 percent each year, rather than sinking all your cash into the property. This not only allows you to grow your wealth faster but keeps a good portion of it liquid in case you need it,” he added.

Source: Huffington Post, July 6, 2018 | Author: Casey Bond

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Jeff & Susie B.
Jeff & Susie B.
Clearwater, FL
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Candis is a real go-getter! She stayed on top of the listing and sale of our home. She was very quick to respond to questions and had up-to-date info on any details we had our attention on. We don't know how she could have done her job any better! She was really good when it came to negotiations and closing our sale. She did what it took to get our sale completed. You will be pleased with her personality and performance handling your transaction.
Jason P.
Jason P.
St. Pete, FL
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Candis was honestly a great Realtor! We were moving from out of state, and she gave us virtual tours of each property. She paid attention to details like the smell of each home. She was always punctual and even sent us helpful reminders to guide us through the move-in process. It would have been impossible for us to make the move without her help!
Bonnie B.
Bonnie B.
Port Richey & Pinellas Park, FL
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Candis went beyond my expectations. She was cheerful and found a place for me to move to within my tight budget in less than a month. She really cares about her clients - she even helped me find a place overnight to stay and provided transportation as I don't drive. I was so grateful to have Candis as my Realtor.
Ryan L.
Ryan L.
St. Pete, FL
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Candis worked so hard for us. She was always on time, prepared, and knowledgeable. She was also kind and patient with her reminders and support. I can't recommend her highly enough! I had an ideal experience!
Tiffanie R.
Tiffanie R.
Largo, FL
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Candis is a highly experienced and knowledgeable realtor. She prides herself on knowing the market, neighborhoods, and the larger view of real estate trends across the country. Her insights, professionalism, and excellent communication skills translate to an interaction that is easy, streamlined, efficient, and effective. I recommend Candis 100%!
Michelle F.
Michelle F.
Largo, FL
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Absolutely amazing. Was very helpful and willing to answer all my questions to the best of her knowledge. Came back to me with more information if she didn’t have the best answers available.
Janet D.
Janet D.
Largo, FL
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Candis was very hands on and always available. She got our home sold and was a huge help in my relocation. We had lived in the same house for 29 years and were unsure how to proceed in our sale. Candis knew what she was doing and steered us in the right direction. She was always thorough in explaining each and every step.
W. Pope
W. Pope
Clearwater, FL
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My buying experience started rough with an agent who did nothing for me. Then I found Candis. I could tell the difference! She immediately began working hard for me. She is a very educated, helpful Realtor who was always a step ahead! She has a great personality and I recommend her to everyone! Even in a tough market, she made my dream of buying my first home a reality and we closed within 30 days!
Joe C.
Joe C.
St. Petersburg, FL
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Thanks to Candis for helping me find a place to call home. In what can be a very stressful experience, Candis always kept things positive and stayed on track towards accomplishing the goal. I highly recommend her for anyone trying to find the right property. I appreciated all of her market insight and creative ideas for making this property more of a home!
Ashleigh & James
Ashleigh & James
Largo, FL
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Candis helped my boyfriend and I purchase our first home. She made the process so efficient and easy that we never stressed about a thing! She is extremely knowledgeable and was always available to answer my questions. She is very responsive and willing to assist whenever needed. The entire process from Pre-approval to Closing was seamless and I wouldn’t want to go through it with any other REALTOR!
Tasha Z.
Tasha Z.
Largo, FL
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Candis went above and beyond to help me secure my new home purchase. There were many hiccups we encountered (at no fault of Candis). She worked hard to be an advocate for me through the entire process, even after closing. 10/10 would highly recommend. Working with Candis was like house shopping with a good friend!
Kim C.
Kim C.
Holiday, FL
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It was great working with Candis. She really cares about her clients and what they want in a home. Her professionalism is top notch.
Tina P.
Tina P.
Clearwater, FL
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Candis has a very happy personality that is so refreshing! If we had questions, she was there to answer. And she worked well with our loan team! In this extremely difficult housing market, Candis kept us positive and patient and we finally got an offer accepted on our first home! If you are looking for a realtor, Candis is the perfect one!
T. Reynolds
T. Reynolds
Largo, FL
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Candis will exceed your expectations. She is personally committed to helping people with extreme professionalism. This combination results in a realtor who anticipates your needs and provides solutions, goes 'above and beyond' normal communication, and executes on your behalf with diligence, care, and expediency. I couldn't recommend her more!
Charlotte B.
Charlotte B.
Largo, FL
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We were moving from CA to FL and Candis made house search over the next year so easy. All we had to do was tell her what we were looking for and she did all the work! She made us feel like family and went above and beyond to help find our perfect house. Candis truly is an upbeat agent who listened to our needs and wants while her fun and positive attitude made her a joy to work with. And her honesty is refreshing.
Paul & Barb L.
Paul & Barb L.
Largo, FL
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We connected with Candis when we visited open house. It was our lucky break! She never made us a feel like just a commission, nor was she impatient as we dragged out the process. She took the time to understand our wants and provided insight, opinion and reassurance throughout the process. Her experience and knowledge were very helpful and she was patient with our many changes in direction. She exceeded our expectations!
Vicki & Daryl H.
Vicki & Daryl H.
Harbor Bluffs, FL
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Candis Carmichael is a fantastic realtor. Her positive outlook paired with her professionalism is a great combination! She is smart, experienced and knowledgeable. She was in constant contact with us and always returned emails, text messages or phone calls in a prompt manner. My husband and I would recommend Candis whether you are buying or selling your home.
Ron & Charlotte VB
Ron & Charlotte VB
Largo, FL
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REALTOR Candis is a true professional Realtor. She listens to your wants and needs, then goes out to find what you asked for. She has local knowledge of all areas (which helped with our relocation from out of State). Candis responds to all phone call and text messages within a short amount of time.
Melody H.
Melody H.
Pinellas Park, FL
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REALTOR Candis is a consummate professional who guides you every step of the way and beyond the sale. She is detailed, personable and always your champion. I can't say enough about REALTOR Candis and would whole-heartedly recommend her to anyone seeking to sell or buy a home.
Kim & Ray L.
Kim & Ray L.
Largo, FL
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She is a great realtor! She listens and truly wants to help people find their forever homes. She's smart and a go-getter and we greatly appreciate everything she did to help us quickly find and buy our new home. She thoroughly explained everything during the process, answered our questions and gave great suggestions. If you want someone who cares and will truly work for you, Candis is who you need! She really is awesome!
Theresa & Sean O.
Theresa & Sean O.
Pinellas Park, FL
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Candis was a such joy to work with! She found us our perfect vacation home and worked hard to get everything finalized. Thank you for your dedication and constant updates during this long distance purchase.
Jane & Dave H.
Jane & Dave H.
St. Petersburg, FL
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We appreciate that REALTOR Candis was genuinely concerned with helping us find a home. We had been blown off by other agents, owners and managers who who kept stringing us along only to tell us they sold or rented out the house. Thank you!
Daryl H.
Daryl H.
Spring Hill, FL
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Candis was recommended and after meeting with her, we were quickly impressed with her professional manner and knowledge of the areas where we were looking to buy.
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