Home Buying Myths You Need to Stop Believing Immediately

If you believe some of the outdated myths about buying a home, you might convince yourself that you’re not ready. But while it’s smart to take your time, you might be more prepared to buy a house than you realize.

Some people believe everything they’re told about this process, and as a result, they can’t separate fact from fiction. This article will hopefully set the record straight.

Here’s a look at five home buying myths you need to stop believing immediately.

Myth #1: You can’t buy a home with a low credit score

A mortgage is one of the biggest loans that many people receive, so naturally, some people think they need excellent credit to qualify. Maybe you believe this, too.

While it’s true that great credit can help you score a low interest rate, you don’t need a high credit score to get a mortgage. In fact, it’s possible to get a conventional home loan with a credit score as low as 620, and an FHA home loan with a credit score as low as 580.

So, if you’ve made some mistakes in the past, but you’re on the right track today, there's a chance that you'll qualify for a home loan—even with a lower credit score.

Myth #2: You can’t buy a house without a 20% down payment

The outdated myth that home buyers need a 20% down payment is another reason why some people put off buying a home.

Yes, this is an ideal down payment amount, but it’s by no means a hard and fast rule. Several loan programs require far less, and some mortgage programs don’t even require a down payment, like VA home loans (for eligible borrowers) and USDA home loans (for properties that meet USDA requirements).

If you apply for a conventional home loan, you may be able to get approved with a down payment as low as 3% to 5%, and it’s possible to get an FHA home loan with a down payment as low as 3.5%.

Understand, however, that you may pay mortgage insurance when purchasing a home without 20% down. This insurance protects your lender in the event of default. But mortgage insurance isn’t always permanent.

With a conventional loan, mortgage insurance drops once you have about 20% equity in the property. If you get an FHA loan with less than 10% down, mortgage insurance is for life. If you put down 10% or more, your mortgage insurance will drop off after 11 years.

Myth #3: An FHA mortgage is only for first-time homebuyers

Another misconception is that FHA home loans are only for first-time home buyers or borrowers with low incomes. The truth is, there are no minimum or maximum income requirements with FHA loans, and you don’t have to be a first-time buyer.

These loans are a great option for first-time home buyers because of the lower down payment requirement. Repeat buyers typically have equity from a home sale which allows them to put down a bigger down payment.

As a first-time home buyer, you’re not using equity from a previous home, so it might be harder to save a sizable down payment. A low down payment helps get your foot in the door sooner.

Myth #4: The only cost of buying a home is the down payment

Most home buyers expect to pay a down payment. But this isn’t their only cost. Getting a mortgage also involves paying closing costs. These are lender and loan fees due at closing, and they can range anywhere from 2% to 5% of the loan amount or higher.

Closing costs include loan origination fees, title search fees, attorney fees, prepaid interest and property taxes, etc. Affording both a down payment and closing costs can be challenging. The good news is that some mortgage programs allow sellers to contribute to a buyer’s closing costs. In some cases, you can even wrap your closing costs into your mortgage balance.

Myth #5: A fixed-rate mortgage is the best option

Maybe you’ve heard that a fixed-rate mortgage is the best option. For some homebuyers, yes, getting a fixed-rate is the safest and best alternative. But if you only plan to live in a house for a few years, you could get a lower rate (and a lower monthly payment) with an adjustable-rate mortgage.

Some people avoid adjustable-rate mortgages because the interest rate on these loans fluctuate from year-to-year. So a borrower’s mortgage payment can increase or decrease from year-to-year.

With an adjustable-rate mortgage, you’ll pay an initial fixed rate for a certain number of years, after which your rate will begin adjusting according to the terms of your loan. These loans are attractive because the initial rate is typically less than the rate on a regular fixed-rate mortgage.

If you get an adjustable-rate mortgage, though, the idea is to sell or refinance the house before your first-rate adjustment.

Final Word

Understanding how mortgages work can help dispel any myths you’ve heard. The loan experts at Blue Spot Home Loans are ready to answer any questions you have and tailor a loan to fit your needs. Give us a call or fill out the contact form.

Cherry Creek Mortgage Co., Inc. NMLS #3001, dba Blue Spot Home Loans. This material is informational only and not an advertisement to extend credit as defined by TILA/Regulation Z nor an application for credit as defined by RESPA/Regulation X. All applications are subject to underwriting approval and determining applicant’s ability to repay. Not all applicants are eligible for or qualify for all loan products offered. All loan programs, terms, and conditions are subject to change without notice. Rates and terms are valid as of the date of printing/distribution. Cherry Creek Mortgage Company is not endorsed by, nor acting on behalf of or at the direction of the U.S. Department of Housing and Urban Development, Federal Housing Administration, U.S. Department of Agriculture, Veterans Administration or the Federal Government.