5 Common Mortgage Myths Busted

Navigating the mortgage process can be overwhelming, especially with all the myths and misconceptions that swirl around. Whether you’re a first-time homebuyer or someone looking to refinance, it’s easy to get caught up in the myths about what’s required to secure a home loan. These misconceptions can lead to confusion, frustration, and even missed opportunities.

In this article, we’ll bust five common mortgage myths that may be holding you back from making the best decision for your financial future.

1. Myth: You Need a 20% Down Payment

One of the most persistent mortgage myths is that you must put down 20% of the home’s purchase price. While this may have been common in the past, it’s no longer a requirement for most buyers. In fact, many people can purchase a home with far less than 20% down.

Reality: There are numerous loan programs that allow for much lower down payments—some as low as 3% to 5%. For example, FHA loans typically require a down payment of just 3.5%, and some conventional loans may require as little as 3%. First-time homebuyer programs, VA loans for veterans, and USDA loans for rural areas all have down payment requirements that are lower than 20%.

Keep in mind that putting down less than 20% may require paying for private mortgage insurance (PMI) until you’ve built up enough equity in the home, but the idea that you need 20% is simply a myth that could prevent you from exploring these valuable options.

2. Myth: Your Credit Score Must Be Perfect to Get Approved

Another common misconception is that only buyers with perfect credit scores (typically 750 or higher) can secure a mortgage. While having a higher credit score can certainly help you get a better rate, it’s not the sole determining factor in mortgage approval.

Reality: You don’t need a perfect credit score to get approved for a mortgage. In fact, there are a variety of loan programs available for borrowers with less-than-perfect credit. While a higher credit score will generally get you better rates and terms, most lenders are willing to work with borrowers who have scores in the mid-600s or even lower. FHA loans, for example, accept credit scores as low as 580 (or even 500 with a larger down payment).

In addition to your credit score, lenders will also look at other factors like your income, employment history, debt-to-income (DTI) ratio, and down payment to determine whether you qualify for a loan.

3. Myth: You Should Always Go With the Bank Where You Have Your Checking Account

It might seem logical to turn to your current bank or credit union for a mortgage, especially if you have an existing relationship with them. However, sticking to your current bank isn't always the best choice when it comes to mortgages.

Reality: Banks, credit unions, and mortgage lenders all offer different terms, rates, and programs, and it’s important to shop around to find the best deal. Your current bank may offer you a mortgage, but they might not have the most competitive rates or the best loan options for your specific needs. Shopping around gives you the opportunity to compare mortgage products and find the one that works best for your financial situation.

Working with a mortgage broker can also help you access a variety of lenders and mortgage products, streamlining the process and ensuring you’re getting the best deal available.

4. Myth: Pre-Approval Means You’re Guaranteed to Get the Loan

It’s common for buyers to think that getting pre-approved for a mortgage means they are guaranteed to get the loan when they find a home. While pre-approval is an important step in the mortgage process, it doesn’t guarantee that you’ll be approved for the loan.

Reality: Pre-approval is a conditional approval based on the information you’ve provided to the lender, such as your income, credit score, and debt levels. It indicates that, based on this initial review, the lender is willing to move forward with your application. However, final approval is subject to a more thorough review of your financial situation, the home you’re purchasing, and any other circumstances that may arise during the underwriting process.

It’s also possible for pre-approvals to fall through if there are changes to your financial situation (such as a significant job loss, changes in your credit score, or new debt) before closing. That’s why it’s important to keep your financial situation as stable as possible throughout the homebuying process.

5. Myth: Mortgage Rates Are the Same for Everyone

Many homebuyers believe that mortgage rates are universal—that everyone will be offered the same rate regardless of their financial profile. In reality, mortgage rates are highly individualized and depend on a variety of factors specific to you.

Reality: Your mortgage rate is influenced by several personal factors, including your credit score, down payment size, debt-to-income (DTI) ratio, loan type, and even the loan term (15-year vs. 30-year). Lenders assess your risk as a borrower, and those with stronger financial profiles (higher credit scores, larger down payments, etc.) are typically offered lower rates.

Additionally, rates can fluctuate based on market conditions and the Federal Reserve’s actions, but they are never “one-size-fits-all.” It's always a good idea to get quotes from multiple lenders and consider your long-term financial goals when choosing the best mortgage option for you.

Conclusion: Don’t Let Myths Hold You Back

The mortgage process is full of myths that can lead you down the wrong path. By understanding the truth behind these common misconceptions, you can make more informed decisions and avoid unnecessary obstacles.

Remember, buying a home doesn’t have to be a daunting process. The more you know about how mortgages work and the options available to you, the better equipped you’ll be to secure the best deal for your unique situation. Whether you need a smaller down payment, have a less-than-perfect credit score, or are simply looking to explore different loan options, there are solutions out there that will work for you.

If you’re ready to dive into the mortgage process or need help navigating your options, don’t hesitate to reach out. I’m here to help guide you through every step of the journey.