Updated December 2023
Uncover the truth behind common mortgage myths, from down payment requirements to credit score myths, and explore the financial implications of renting versus owning in this insightful guide.
In the world of mortgages, an overwhelming amount of information is floating around, so misconceptions are bound to appear. These misconceptions not only make it difficult for customers to figure out what is true and what’s false, but they also slow down the mortgage process due to confusion and misunderstandings.
We’re here to set the record straight by debunking five common myths you might encounter while applying for a mortgage.
If you’re more of a visual learner then our Debunking Mortgage Myths video below is for you. This is a visual representation of the following blog:
1. A Homebuyer Needs 10-20% For Their Down Payment
Perhaps one of the most common misconceptions is that you need to have saved a huge down payment before you can even consider applying for a mortgage. In reality, a 20% down payment is only required if you’re looking to avoid paying private mortgage insurance (PMI).
Depending on your circumstances and the home you’d like to buy, you could qualify with a down payment of as little as 3.5%. Each loan program has different requirements, so you should discuss your options with a lender first to understand how much you’ll need to save for your down payment.
Find out more about your mortgage loan options by having a free consultation with one of our Loan Officers.
2. Your Down Payment Covers Your Closing Costs
It’s important to remember that when preparing to apply for a mortgage loan, you’ll need to set money aside for your closing costs in addition to your down payment. Let’s break down the difference between the two expenses.
- Down payment: The portion of a home’s purchase price paid in cash up-front that is not part of the mortgage loan.
- Closing costs: The customary costs above and beyond the property sales price that must be paid to cover the transfer of ownership at closing.
Closing costs vary by location, and you’ll usually find out how much you need to save when you receive your loan estimate. So, before starting on the path toward homeownership, ensure you’re prepared to save money for your down payment and closing costs.
3. It’s Cheaper to Rent than to Own
The debate surrounding whether it’s cheaper to rent or buy a home has been going on for a long time, but the truth is that it depends on your circumstances. If you’re unsure which option is right for you, there are many factors to consider, such as equity, rent prices in your area, appreciation, stability, and more. However, there are many affordable options out there that could make buying a home cheaper in the long term.
An example is the VA Loan — a life-changing loan program that supports veterans, those currently serving, and their spouses in buying their dream home, with several benefits such as no down payment or PMI requirement.
To figure out whether buying a home is the right option for you, Nerdwallet has created a helpful rent vs. buy calculator to shed some light on this never-ending debate.
Want to learn more about the VA Loan? Visit our VA Loan page to find out more and consult with our team.
4. I Need Exceptional Credit to Purchase a Home
While having a solid credit report can be helpful when it comes to meeting the eligibility requirements of certain mortgage loans, it does not have to be spotless. Lenders will consider several factors in addition to your credit score, such as your income, assets, the property you’d like to purchase, and how much debt you have.
In general, you should aim to have a credit score of 620 or higher, as this is the standard minimum credit score requirement for a Conventional Mortgage Loan. However, if your score is lower than this, you could consider an alternative loan option, such as an FHA Loan application, which you might qualify for. FHA Loans do not impose any additional fees or interest rates on customers with lower credit scores.
Factors that have the greatest negative impact on your loan application include serious issues such as bankruptcy or foreclosure. If you’re concerned about your credit report, you should discuss it with an expert to find out your options or refer to the latest government guidance.
5. You Should Buy a Home for the Maximum Mortgage You Qualify For
While committing to a large mortgage to secure a bigger home might be tempting, it can lead to hardship in the long run if it’s more than you can afford. You should always focus on what you can actually afford to pay each month. What’s more, ensure that your remaining income will allow you to be prepared for unexpected expenses that could come up.
If you’d like more support with calculating the size of mortgage that you can afford, reach out to your lender or try our helpful mortgage affordability calculator.
Mortgage Information You Can Trust
Now that we’ve debunked some of the most common mortgage misconceptions, you should feel more prepared to tackle the task of finding your dream home. We want to help you achieve your perfect property and are ready to give you all the information and support you need to secure your mortgage loan.
Request a free consultation with one of our Loan Officers today.
Article Sources
- The Mortgage Reports — “How much is a down payment on a house?” June 1, 2023
- CNBC — “Closing costs on a house can get expensive. Here’s how much they are and what they include.” Nov 16, 2023
- Nerdwallet — “Rent vs buy — what’s right for you?” Dec 6, 2023
- USA.gov — “Learn about your credit report and how to get a copy.” Nov 7, 2023
