Do You Really Need 20% Down to Buy a House? Real Estate Myths Debunked

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Debunking real estate myths

This is an interactive show — jump in, tell me what you're thinking, and ask your questions; I'll read them out loud and answer them for you. We're working on getting the show streaming on Instagram, Facebook, and YouTube all at once, so bear with us today — it's all brand-new technology, and if you can't hear or see something, put it in the chat so we can fix it right away.

Today we are debunking real estate myths. I wrote out three pages of things I've heard — things people have actually said to me — that are absolutely inaccurate. We'll go through what people believe, and then what the reality is. And if you've heard something and want to know whether it's true, put it in the chat.

Myth: looking at homes is the best first step

A lot of people believe the best first move is to start touring homes — out on the weekends, walking open houses, seeing what they fall in love with. In reality, that is not your first step. If you want to buy a home, you first need to know what you can afford. You could walk into an open house, fall in love with the home and the neighborhood — and then find out you can't get the loan, or the monthly payment is too high. Shop for the pre-approval first. Call a lender, call Mortgage Mom Radio, get your affordability and your price range done, and then get out there and look.

Q&A: leased land

A question came in: “I've noticed during my search in Parker, Lake Havasu, and Bullhead City that nearly all the waterfront properties are on leased land. Are properties like that mortgageable?”

It depends on the property, but leased land does not by itself mean you can't get a mortgage. What determines the financing is the property — is it a mobile home, what year, is it in a park or on real property? I've seen condominiums in Newport Beach on leased land, and true homes on leased land back where my dad lives in Illinois. We can do leased-land financing. What matters is how many years remain on the land lease: we can only finance to about five years short of the lease expiration, so if there are only 20 years remaining, we can only finance for 15. Ask that question up front — how many years of the lease are left — and the rest comes down to whether the property itself is lendable. And I love that this question came from my dad; I'm trying so hard to get him to move to the West Coast.

Myth: you don't need an agent to buy a home

Here's the truth: you can buy a home by yourself, and you can sell a home by yourself. A real estate agent is absolutely not required. But I absolutely suggest one. You will do so much better with somebody behind you who knows the contracts, understands what you're signing, knows the inspection periods, what inspections you can do, and who should pay for what. So no, you don't need an agent — but you absolutely should have one.

Myth: buying new construction means few repairs

Many people think buying brand-new construction shields them from repairs and surprises. Many new homes are built to great standards — there are very good builders out there — but understand that builders move fast; that's how they make their profit, and sometimes things don't get done right. A brand-new home does not mean nothing will go wrong. I've had a brand-new washer and dryer delivered where the dryer didn't work out of the box — the same thing can happen with your water heater or a pipe. Don't buy new construction believing you've escaped maintenance and repairs.

Myth: you'll need a 20% down payment

If you've been watching me since I started this show back in 2016, you know this one already — and yet so many people still believe a 20% down payment is required. It is not. There are many, many loan programs with less than 20% down: zero down for USDA, zero down for veterans with VA financing, and down payment assistance for buyers who can't come up with the 3% or 3.5% programs' minimums. If 20% is what your neighbors or your parents told you to save for, get on the phone with us before you wait any longer — the market and home values keep climbing, and if you're already able to do the transaction, you don't want to miss that appreciation.

Myth: the down payment is the only upfront cost

Your down payment is not your only out-of-pocket expense — even on a zero-down VA loan. First, closing costs: a lot of people have heard of them, but I've had clients get into escrow knowing they needed their 3% or 10% down and nothing about closing costs. Talk to your lender about what to expect — and remember closing costs can be negotiated; you can get the seller to pay them.

Then there are the things you pay before the transaction ever closes, outside of down payment and closing costs. The appraisal: the bank requires it for financing, the appraiser does the work and delivers the report, and you pay for it out of pocket up front. The physical inspection: your due diligence, hiring an inspector who knows real estate transactions to make sure everything works and flag repairs — which then gives you the chance to ask the seller to fix them. You pay that inspector for their time and report. Termite: sometimes the seller pays, sometimes the buyer — and I highly recommend getting one; you want to walk in knowing the home is termite-free, because maintaining it is your job from there. There are also deeper inspections — mold, plumbing — typically on the buyer. And if you're buying in an association, especially a condo or townhome, the lender needs documents from the HOA — reserves, budgets, rules, insurance — and the association charges for those copies, paid up front.

Myth: getting pre-approved will hurt your credit

This one is simply wrong. Your mortgage lender can pull your credit one time and have it cover both the pre-approval and the closing — a mortgage credit report is good for 120 days, about four months, and if your loan closes inside that window we never pull it again. One inquiry is not really going to move your score.

And here's the part people misunderstand about shopping around: credit reports can't be shared between lenders — each company has to pull its own. But the credit bureaus give you a 30-day shopping window for mortgage financing. Shop other lenders within that window and the extra pulls show up on the report but don't ding you as additional inquiries. What really drops scores is applying for credit card after credit card — that's opening new credit in lots of places. Shopping one mortgage among a few lenders inside 30 days is not that. So get pre-approved, and if you want a second opinion, get it within the window.

Myth: schools don't matter if you don't have kids

When you're deciding where to buy and you have no kids, it's tempting to think the school district is irrelevant. Schools are near the top of the list for a huge share of buyers — people who have children or plan to. Whether or not kids are ever in your plan, the school district matters to what your home will be worth when you sell — it's part of judging whether the purchase is a good investment.

Q&A: the seller didn't disclose defects

Michelle asks: “What legal recourse do we have if the seller did not disclose all the defects on the property? I bought the house in December with no rain, and my backyard floods every time it rains.”

Michelle, that goes back to your real estate agent. I was a licensed agent early in my career, but I haven't held that license in about 23 years — I've been in mortgage since 2001 — so I have the general knowledge but I'm not licensed to guide you through it, and I won't answer a question wrong. Your agent can show you in your contract whether you agreed to arbitration, and taking the seller to arbitration may be the path. That's the agent's piece of the puzzle: my job is getting you the money to buy the home; their job is protecting you, writing the contract, and making sure you understand everyone's obligations — which is exactly why I said earlier that you can buy without an agent but shouldn't. If you're not getting answers from your agent, remember they hang their license with a broker — call the broker of the agency. And if your agent is the broker-owner, you might reach out to the Department of Real Estate. On whether there's a time limit to file — I honestly don't know, and I won't guess; ask a licensed agent that one.

Myth: you must sell your current home before buying a new one

Absolutely not true. We do loans all the time for clients who want to close on the next home first — move out, move in, clean up the old house, and then market it for sale. We have loan programs where we don't have to count the mortgage payment on the departing residence against you, and ways to help get some of the cash out of the house to make the new purchase work. And if you want to keep the old home as a rental: market it for rent, sign a lease, get us a deposit check, and we can use that rental income on the departing residence toward your qualifying ratios. That assumes you've saved at least something for the down payment on the next property — but "sell first, always" is a myth, and there are multiple ways around it.

Myth: your pre-approval amount is the amount, period

Clients hear their number and think the only fix is a bigger down payment — "if I qualify for $500,000 and I add $50,000, I can buy at $550,000." It's not dollar-for-dollar: a higher price means higher homeowners insurance, higher mortgage insurance, higher property taxes. What actually works is telling your loan officer the goal. Say you're qualified at $500,000 but everything in the neighborhood you want starts at $600,000 — now we start moving the numbers. Maybe the extra $50,000 gets you into a conventional loan with no mortgage insurance. Maybe it buys out the mortgage insurance entirely, or buys the interest rate down so you qualify for more. Maybe we pay off the $20,000 car loan with its $500 payment and your debt ratios drop. The pre-approval is a purchase price and loan amount we built together — and we can rebuild it. Just call your lender and tell them what you're trying to achieve.

Myth: set the list price high to leave bargaining room

Sellers, don't do this. I have watched people price high "to leave room to negotiate" — and the house sits, and sits, with no buyer engagement because it's overpriced for the market. By the time they take the first price drop, buyers have watched it sit and assume something is wrong with the property — why hasn't it sold? — and that can absolutely kill you in the market. Price the home where it should sell. Know the number you need to net, tell your agent that number, and price it right for the neighborhood. Getting people through the door is everything; a home sitting on the market is you hurting yourself.

Myth: setting a low price means you'll make less money

The flip side, and it's also a myth. Some agents' strategy is to list a bit under the last comparable sale to spark interest — get everyone saying "that's a great deal, let's see it today" — and generate multiple offers. Once you have three and four offers, you have a bidding war, and you may well end up above where the overpriced listing down the street started. It depends on your market: if your home sits in the common price range for the neighborhood — where most buyers are looking — this can work very well. A multi-million-dollar property is a different strategy. But don't rule it out; priced right for the area, the overbidding can carry you higher than "leaving room" ever would.

Myth: negotiate the agent's commission to net more profit

It sounds logical — pay the realtor less, keep more. But agents searching listings for their buyers can see what a listing offers, and a listing with a very low commission has a real chance of being shown last, or not at all. Cutting the commission below what's typical can keep suitable buyers from ever walking through your home. And "typical" is local — it differs by city, county, and state — so look at what's common for your area and offer it. Get as many people through the property as you can and take the best offer; that's how you net more.

Myth: professional staging is necessary for a quick sale

Staged properties are really pretty, and some buyers do struggle to picture furniture in a vacant home — I understand why agents like staging, and if the property is vacant it's worth thinking about. But necessary? No. It generally isn't going to change the offer you receive, and it costs money. If you're living in the home: declutter and clean. Fold the blankets, clear the countertops, put the knickknacks and the salt-and-pepper shakers away, vacuum, make it as clean and presentable as it can possibly be — and you will be okay without staging.

Myth: the highest price is always the best offer

This one is for buyers and sellers. Sellers with multiple offers: taking the highest number is not automatically the best decision. Sometimes the highest offer isn't the strongest buyer — smaller down payment, stretched qualifying, a pre-qualification instead of a real pre-approval, no proof of assets when you ask to see them. When you sign a contract, what you want most is a sale that closes — you're selling because you want your money out, and if their financing falls through, your plans fall through with it. And sometimes the highest offer — even a strong cash one — comes back mid-transaction demanding credits for every repair, using that big number as leverage.

So understand who is behind each offer. Make sure your agent has done the diligence — called the loan officers behind each pre-approval letter, talked to the other agents about why the buyers are buying. The buyer whose parents live on the same street is going to do everything possible to close. Pick the contract that's a fair price and the one you're most confident will close. Buyers, same lesson in reverse: the highest offer doesn't always win, so don't be shocked if your big number loses to a stronger file — be completely pre-approved, have your bank statement ready to show your assets, and make your offer the one the seller trusts.

Wrap-up

Tonight at 5 p.m. Pacific I'm doing a home buyer workshop right here on YouTube — the whole transaction from beginning to end, fantastic for first-time buyers and a great refresher if you haven't bought in four or five years. And if you want to know when I go live each week, text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — for one text a week with the topic and the link to join; it's the same number to call for help with your loan. See you next Wednesday at 1 p.m.