Mortgage Myth Busting

Myth #1: You need a 20% down payment to buy a house.

This is one of the most enduring myths about home ownership. After WWII, using a mortgage to buy a home became much more popular than in years past, and yes, a 20% down payment was typical.

Today, we have a wide array of mortgage options, giving you the flexibility to pursue your home ownership dreams without the need for a hefty 20% down payment.

For example, FHA loans require only a 3.5% down payment. Many lenders also offer conventional loans with just a 5% down payment. And, if you’re in the military or a Veteran, you can get a VA mortgage with no down payment at all!

Extra dose of truth:
The more money you put down on a home, the less risk there is for your lender. If you put less than 20% down, you will typically have to pay for Private Mortgage Insurance (PMI) as part of your monthly payments. Once your loan balance is less than 80% of your home’s value (Loan-to-Value/LTV), you can request to cancel PMI on a conventional mortgage. Note: FHA loans require PMI for the life of the loan.

Myth #2: You need a ‘perfect’ credit score

A good credit score helps, but you can qualify for many mortgage options with a score as low as 600.

Extra dose of truth:
The higher your score, the more options you have. Pay your bills on time to improve your rating; that's the most significant factor affecting your score.

Myth #3: You can’t have any debt

This is not true. As long as you can afford your current debts, plus a mortgage payment, there’s no reason you can’t buy a home!

Extra dose of truth:
Mortgage lenders look at your debt-to-income ratio (DTI), which is your total monthly debt divided by your total monthly gross income. It is best to get your total debt to 40% of your income or lower. (You may qualify for some mortgage options with a DTI of 50%.)

Example:

Myth #4: Renting is better

When you rent, you're paying your landlord's mortgage. However, when you own a home, you're investing in your future, as real estate values appreciate over time.

The share of the home value you own free and clear grows as you pay down your mortgage balance. This is your equity. The longer you rent, the more equity you’re building for your landlord instead of yourself. Plus, you can borrow against your equity down the road for home improvements or paying off high-interest debt.

Take your first step to owning a home       

Becoming a homeowner remains one of the most rewarding life events. More options than ever are available today, so it's best to talk with a Mortgage Banker to help you make the best choices. We look forward to helping you take the first steps in your home ownership journey!