Homebuyers

Mortgage Myths Debunked: What Every Homebuyer Should Know

When it comes to homebuying, there's no shortage of folks eager to provide advice.

Unfortunately, a lot of what's said may be based on outdated information, half-truths, or false assumptions. And following the wrong advice can cost you time, money, and opportunities.

These are some of the most common mortgage myths debunked to help homebuyers navigate purchasing a property with confidence.

Myth 1: You need a 20% down payment

Myth: You need a 20% down payment to purchase a home.

Reality: If you've been waiting to save up 20% of the purchase price of a home, we have some good news. It’s not a requirement.

Sure, putting 20% down helps you avoid private mortgage insurance (PMI), but it's far from the only option. In fact, many lenders offer programs with down payments as low as 3% or even 0%.

If you qualify for a U.S. Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) loan, you could buy a home with no down payment at all.

And thanks to various down payment assistance programs that can cover a down payment and closing costs, buyers may have more options than they realize. Contrary to popular belief, many of these programs don't require you to have low income or live in specific areas.

"There are more down payment assistance and grant programs available than ever before,” said Ralph DiBugnara, a regional vice president for New American Funding based in Edgewater, N.J.

The bottom line: Don't let the 20% myth hold you back. With the right guidance, you might be closer to homeownership than you think.

Myth 2: Pre-qualification guarantees loan approval

Myth: A pre-qualification for a mortgage guarantees loan approval.

Reality: Many people don’t understand what getting pre-qualified for a mortgage means.

While it's a helpful starting point, it's not a guarantee of loan approval. A pre-qualification simply gives you an estimate of how much you might be able to borrow based on basic financial information.

A mortgage pre-approval, on the other hand, is a more thorough process where a lender reviews your financial documents, such as pay stubs, tax returns, and credit reports. A pre-approval letter shows sellers that you're serious about buying and have been vetted as a qualified buyer.

The bottom line: While pre-qualification can give you a rough idea of your budget, don't skip the pre-approval step if you're ready to make an offer on a home.

Myth 3: A 30-year, fixed-rate mortgage is always the best loan

Myth: A 30-year, fixed-rate mortgage is always the best loan.

Reality: The 30-year fixed-rate mortgage is one of the most popular home loan options, and for good reason. This type of mortgage typically offers more offers stability and predictable monthly payments. However, that doesn't mean it's always the best choice for everyone.

If you're looking to save money on interest and can handle slightly higher monthly payments, a 15-year mortgage might be a better fit. These loans typically offer lower mortgage rates than 30-year loans. Over time, you'll pay significantly less in interest, and you'll build equity faster.

Alternatively, adjustable-rate mortgages (ARMs) might work for buyers who plan to move or refinance before the rate adjusts. ARMs often start with a lower initial rate, which can make them attractive for short-term homeowners or those expecting changes in their financial situation.

However after a set period of time, the rate adjusts which can lead to higher mortgage payments.

The bottom line: The key is to match your mortgage type with your financial goals and how long you plan to stay in the home.

Myth 4: Don’t pay points to buy down a mortgage rate

Myth: You shouldn’t pay points to your lender to buy down a mortgage rate.

Reality: You've probably heard that paying points—also known as buying down your interest rate—isn't worth it. But this depends on your financial situation.

Paying discount points can lower your interest rate upfront, giving you a lower monthly payment and saving you money over the life of the loan.

Typically, one point costs about 1% of your loan amount and lowers your mortgage rates by a quarter of a percentage point.

"The short-term benefit is an increase in buying power, and the long-term benefit is paying less interest over the life of the loan," said DiBugnara.

This strategy can be especially helpful in today's market, where higher interest rates can affect affordability. Plus, in most cases, the cost of the points is tax-deductible.

The bottom line: Buying points can be a smart move if you plan to stay in your home long enough to break even on the upfront cost.

Myth 5: You shouldn't ask sellers to help pay closing costs

Myth: Buyers shouldn’t ask sellers to contribute to closing costs.

Reality: It's a common misconception that you can't request that sellers help with closing costs, especially in a competitive market. They may fear that sellers won’t accept their offers if they ask.

While it's true that sellers had the upper hand for much of the recent housing boom, the market is shifting, especially in some parts of the country. If a home has been sitting on the market for a while, sellers may consider helping with a buyer’s closing costs to secure the sale.

The bottom line: Seller concessions can cover some or all of your closing costs, making it easier to manage upfront expenses. Don't be afraid to negotiate—it could save you thousands of dollars.

Ralph DiBugnara NMLS # 19269