We all walk around with ideas stuck in our heads, even though they're not true. In case you’re carrying around misconceptions about real estate, I thought I’d set the record straight.

You do NOT need 20% down to buy a home.

     There are many programs that offer low- or no-down-payment home loans, especially for first-time homebuyers. The United States Department of Agriculture (USDA), Federal Housing Authority (FHA), and Veterans Administration all offer these types of loans. If you can afford the monthly loan payment, property tax, homeowners insurance, and home maintenance costs—but you’ve struggled to save up a down payment—there's still hope. You can even buy raw land with as little as 15% down if you have good credit. Just because you don’t have cash doesn’t mean you can’t buy a home.

A bigger down payment is NOT always better.

     A bigger down payment typically means you get slightly better loan terms: lower interest rate, lower monthly payments, and so on. Still, this doesn’t mean a bigger down payment is always better.  

     Your down payment doesn’t reduce the cost of property taxes or insurance, but it does reduce how much cash you have on hand once your escrow closes. It’s best not to deplete your bank account to zero, because home ownership always comes with unexpected costs. Be sure you have money available to cover those expenses.

Waiting to afford your dream home might mean waiting forever.  

     Some people put off buying a house until they can afford their dream home. That may be setting an unrealistic expectation. Getting into the market in a starter home builds equity which, along with a higher salary, you can then use to upgrade to your dream home later. I’m not suggesting you buy a home that doesn’t meet your needs, but you may want to prioritize which needs are essential and which ones actually belong on a wish list. This will allow you to find a home sooner.

Home ownership isn’t for everyone.

     I am a big believer in home ownership. Historically, it’s been a good financial investment. It’s also wonderful to be able to create a comfortable place to live that fits your lifestyle. However, if renting puts a little more money in your pocket and allows you to afford more of what you want (vacations, eating out, fancier car), maybe that’s a better choice. While home ownership increases most people’s wealth in the long run, it is often more expensive in the short run. 

Get preapproved for a loan before you start looking for a home.

     If you’re serious about buying a house—or any property—the first thing you should do is get pre-approved (not just pre-qualified). Your REALTOR can recommend some reputable local lenders to choose from. Once you’re pre-approved, you’ll know what you can afford, and so will sellers, which puts you in a strong position when it comes time to negotiate.

     Just so you know, you don’t have to use the same lender who does the pre-approval. If you don’t enjoy working with them, your REALTOR can recommend someone else.

Your pre-approval isn’t locked in.

     Your pre-approval is based on the picture at the time, including your financial situation (credit, income, expenses) and market conditions (interest rate). This can change between pre-approval and closing. Avoid changing jobs or making any major purchases while searching for a home, as this affects loan qualification.

     One of the many reasons I prefer to work with local lenders is because they take care of you. They know their business depends on their reputation. Online lenders don’t really care about that, so they may not worry too much if you lose your rate lock, for example.

A 30-year fixed-rate mortgage is NOT always best

     While I usually prefer a “30-year fixed,” as we call them, that's because I have no plans to leave this community, where I've lived my entire life. If interest rates improve, I can always refinance. Otherwise, I can just stick with the original loan. However, this isn't true for everyone. If you have a job that requires you to move every five years, for example, you may benefit from a stepped 15-year home loan with low rate for first five years or some other configuration.

     I’ll share more real estate facts next week.

     If you have questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

     Dick Selzer is a real estate broker who has been in the business for more than 50 years. The opinions expressed here are his and do not necessarily represent his affiliated organizations.