6 Common Mortgage Myths: Sorting Fact from Fiction

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Malcolm-Wiley Floyd


Sep 28, 2023

CEO and Co-Founder of Stairs Financial, a YC-backed startup that connects first-time home buyers with down payment assistance programs across the US. Malcolm-Wiley studied economics at Harvard and is a licensed mortgage broker.

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    If you’ve told anyone you’re ready to buy a house or asked friends or family for advice, you’ve likely gotten a lot of well-meaning guidance. However, not all advice is good advice. There are a lot of mortgage myths and home-buying half-truths  out there. 

    Many of these myths seem sensible, and they’re easy to believe. That’s why they keep getting passed around. But buying a home is a big deal. You need solid facts to make the best decisions. 

    In this article, we dispel the most common myths about taking on a mortgage to buy a home, so you can start your journey with confidence, and likely sooner than you imagined. 

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      Myth #1: Renting is always cheaper than buying

      This might be the most common home-buying myth around, rivaled only by its counterpart, the equally prevalent myth that says buying is always cheaper than renting. 

      These twin myths go like this:

      Renting is cheaper than buying. If you rent, you don’t have to pay for repairs, homeowner’s insurance, taxes, or any of the other costs associated with owning a home.

      Buying is cheaper than renting. Many well-meaning people will flip this myth around and tell you that buying is always cheaper. They’ll say that since your housing payment doesn’t also have to pad your landlord’s pocket, your mortgage costs will typically be lower than your rent would be for a similar property. 

      Truth: When you account for all costs, the monthly price of renting and owning is often similar. 

      That being said, for many people, buying is a better long-term value. This can be true even if buying in your area is a bit more expensive than renting. 

      When you own a home, you also own your equity in that home. This equity is a valuable resource that tends to increase over time. You can borrow off of your equity, or you can leverage it to upgrade to a bigger or nicer home at some point down the line. If you rent, you aren’t making that same investment. 

      Further, there are tax advantages to owning vs. renting. These tax advantages may effectively lower your true monthly cost. 

      However, if your monthly mortgage payment stretches your budget too far, these benefits might not be worth the risk. Ultimately, both of these myths are incorrect, to some extent. Every person’s situation is different, and buying vs. renting is more complex than just absolute dollars. 

      Myth #2: You must have pristine credit to buy a home

      The old wisdom is that you need to get your credit score up to perfect or near perfect before you get a mortgage. Lenders are incredibly picky about who they loan money to, and they won’t even look at your mortgage application if your credit score is below 700. 

      On second thought, you should probably get your score up to 720, just to be sure.

      Truth: To buy a home, your credit needs to be decent, but certainly not perfect. 

      There are conventional mortgage loan programs that accept applicants with credit scores of 620 or higher, and there are special purpose credit programs that allow otherwise qualified homebuyers to take out a mortgage with a minimum credit score of 500. 

      This is not to say that credit scores don’t matter or that you shouldn’t bother improving your own credit score. A higher credit score is definitely helpful, and it can often get you better terms on your mortgage loan. But there’s no need to wait until you have amazing credit to explore your home-buying  options.

      Myth #3: Interest rates are the only factor when choosing a lender

      As this myth goes, a lender is a lender is a lender. Look at the interest rate each lender offers, and choose the lender with the lowest rate. After all, the interest rate is the only thing that affects your payments.

      Truth: Not all lenders are the same, and these differences go beyond just rates.

      Above and beyond interest rates, each lender has its own fee structures and approach to customer service. What happens to your loan after it’s closed will also vary from lender to lender. 

      Another important factor to consider is your lender’s ability to help you with down payment assistance (DPA). Not all lenders are qualified or experienced in working with DPA, and some DPA programs even require that you work with an approved lender. 

      Myth #4: A down payment is the only upfront cost

      If you believe this particular myth, you’ll assume that as long as you have your down payment in order, all that’s left to worry about, cost-wise, is finding the right house for the right price.

      Truth: Beyond your down payment, you also need to plan for closing costs.

      It’s true that your down payment is most likely your largest upfront investment, but closing costs are another expense you need to plan for. Closing costs include items like the loan origination fee, title fees, prorated interest, and the like. 

      Some closing costs are covered by the seller, and you can also try negotiating with them to offset a portion of your own closing costs. 

      All told, your closing costs as a buyer usually add up to less than 5% of the total sale price. This amount can be rolled into your mortgage loan, if necessary. But as you make plans to buy a home, it’s an important line item to keep in mind. 

      Learn more: How much are closing costs in Texas? 

      Myth #5: A 20% down payment is a must

      This is one of the most persistent mortgage myths: buying a home is only feasible if you put 20% down, so you shouldn’t even bother looking until you can meet this benchmark. 

      Some people say lenders won’t even consider giving you a loan without 20% down. Others say that there’s no point in buying if you can’t get the lowest monthly payment possible, which 20% down will help you accomplish. 

      Truth: You can buy a home with far less than a 20% down payment. 

      The minimum down payment on most conventional loans can be as low as 3%. FHA loans have a down payment minimum of 3.5%, and there are even some loan programs that allow you to buy with nothing down.

      However, there is some truth to this myth. There are definitely benefits to making a 20% down payment. This amount gets you a lower interest rate, a lower total loan amount, and in turn lower monthly payments compared to a smaller down payment. 

      You also won’t have to pay private mortgage insurance, which is required on most loans in which the buyer puts less than 20% down. 

      That being said, you can definitely buy a home with a smaller down payment, and many homebuyers do just that. Even a small increase in your down payment, say from 5% to 10%, can get you more favorable terms and a smaller monthly payment. 

      Myth #6: It takes years to save up for a down payment

      Even if you put less than 20% down on your home, you could still be looking at an upfront investment of thousands or even tens of thousands of dollars. This is a sobering fact, and it leads many people to believe they’ll need to save for years to make a meaningful down payment.

      Truth: Down payment assistance can help you make a down payment without years of saving. 

      DPA programs offer thousands or even tens of thousands of dollars in funding for homebuyers, usually in the form of forgivable loans or grants. 

      In most cases, you will submit your application for down payment assistance directly to your mortgage lender, at the same time you complete your mortgage application. The process is pretty straightforward.

      The most challenging part of accessing down payment assistance is getting information about all of the different programs and finding a lender who is approved to work with your specific program. 

      Stairs Financial makes all of this easy. 

      Stairs streamlines your access to down payment assistance, making it easy for you to connect with a trusted lender and compare the loan and assistance programs you may qualify for, all in one place.

      Learn more about your down payment assistance options.

      Find up to $15,000 towards a home 🏠

      Compare local down payment assistance and find a mortgage, fast.

      Where do you want to buy?
        Search by ZIP code, address, city, county, or neighborhood
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