As you set out on the exciting journey of purchasing a new home, you’re likely to encounter a sea of information about mortgages. However, not all that glitters is gold. There are plenty of misconceptions floating around that can lead you astray. To help you make informed decisions, we’re here to debunk some of the most common mortgage myths. Let’s set the record straight on what truly matters in the world of home financing.
Myth #1: You need a 20% down payment
Reality: While a 20% down payment can help you avoid private mortgage insurance (PMI), it’s not a mandatory requirement. Many lenders offer options with lower down payments, making homeownership more accessible.
Myth #2: Fixed-rate mortgages are always better
Reality: While fixed-rate mortgages provide stability, they might not be the best choice for everyone. Depending on your plans, an adjustable-rate mortgage (ARM) could offer initial savings, especially if you plan to move or refinance before the rate adjusts.
Myth #3: Renting is always cheaper than buying
Reality: Renting and buying each have their own financial considerations. Buying can build equity over time, while renting offers flexibility. Do the math and consider your long-term goals.
Myth #4: You should close all credit accounts before applying for a mortgage
Reality: Closing credit accounts can negatively affect your credit utilization ratio. It’s better to maintain a consistent credit history, but avoid taking on new debt before applying.
Myth #5: A prequalification means you’re approved
Reality: Prequalification is a preliminary step that gives you an idea of how much you could borrow. Preapproval, on the other hand, is a more thorough process that carries more weight with sellers and shows you’re a serious buyer.
Myth #6: Your interest rate is the only important factor
Reality: While a low interest rate is crucial, don’t overlook other costs like closing fees, points, and origination charges. Consider the overall loan cost when evaluating offers.
Myth #7: You can’t buy a home with bad credit
Reality: While a higher credit score is advantageous, there are mortgage options for individuals with lower credit scores. You might qualify for an FHA loan or other programs with more lenient credit requirements.
Myth #8: Your down payment is your only upfront cost
Reality: Closing costs, which include fees for appraisals, inspections, and loan processing, are typically 2-5% of the home’s purchase price. Budget for these costs in addition to your down payment.
Myth #9: You should time the market to get the lowest rate
Reality: Trying to predict interest rate movements can be challenging. It’s better to focus on your financial readiness and secure a rate that works for you when you’re ready to buy.
Myth #10: All lenders offer the same rates and fees
Reality: Rates and fees can vary significantly between lenders. Shopping around and getting quotes from different lenders can help you find the best deal.
