Debunking Common Mortgage Myths Every Buyer Should Know

16 May 2025

Buying a home is a big step, and for many, it’s one of the biggest financial commitments they’ll ever make. But when it comes to mortgages, there are plenty of myths floating around that can make the process even more intimidating. Misinformation can lead to unnecessary stress, hesitation, or even bad financial decisions.

So, let’s set the record straight! In this guide, we’ll debunk some of the most common mortgage myths that might be holding you back.

Myth #1: You Need a 20% Down Payment to Buy a Home

The Truth: You Can Buy a Home with Much Less!

One of the biggest misconceptions in real estate is that you need to put down at least 20% of the home's price. While a larger down payment can help you avoid Private Mortgage Insurance (PMI) and reduce your monthly mortgage payments, it’s far from a requirement.

Today, many loan programs allow buyers to purchase homes with as little as:

- 3% down with conventional loans
- 3.5% down with FHA loans
- 0% down with VA and USDA loans

If saving for a massive down payment has been stopping you from buying a home, it’s time to kick that myth to the curb.

Myth #2: Your Credit Score Must Be Perfect to Get Approved

The Truth: Good But Not Perfect Credit Can Still Get You a Loan

Yes, a higher credit score can help you qualify for better interest rates, but a perfect score isn't necessary. Many lenders approve borrowers with credit scores as low as:

- 500+ for FHA loans (with a 10% down payment)
- 580+ for FHA loans (with a 3.5% down payment)
- 620+ for most conventional loans

Even if your credit isn't stellar, there are still loan options available. Plus, improving your score before applying for a mortgage doesn’t have to take years—it can be done in months with responsible financial habits.

Myth #3: You Should Always Choose a 30-Year Fixed Mortgage

The Truth: The Best Loan Term Depends on Your Goals

A 30-year fixed-rate mortgage is the most popular option, but it’s not always the best choice for everyone. Consider these alternatives:

- 15-Year Fixed Mortgage – Higher monthly payments but lower interest costs over time
- Adjustable-Rate Mortgage (ARM) – Lower initial rates that adjust over time, ideal if you plan to move or refinance sooner

If you plan on staying in your home for decades, a 30-year fixed mortgage can provide stability. However, if you want to save on interest or don’t plan to stay long-term, there may be better options.

Myth #4: Pre-Qualification and Pre-Approval Are the Same Thing

The Truth: Pre-Approval Holds More Weight

Many buyers think getting pre-qualified is good enough when shopping for a home, but there's a big difference between pre-qualification and pre-approval:

- Pre-Qualification – A basic estimate of how much you might qualify for based on self-reported financial information.
- Pre-Approval – A lender reviews your finances, credit score, and income, then provides a verified loan estimate.

Sellers take pre-approved buyers more seriously because it shows you're financially ready to make an offer. If you're serious about buying a home, aim for pre-approval, not just pre-qualification.

Myth #5: The Only Upfront Cost is the Down Payment

The Truth: Closing Costs and Other Fees Can Add Up

Your down payment isn’t the only significant cost when buying a home. You'll also need to budget for:

- Closing costs (typically 2-5% of the home price)
- Home inspection fees
- Appraisal fees
- Moving expenses

Lenders are required to provide a Loan Estimate, which includes all anticipated fees, so you won’t be caught off guard. Just make sure you're financially prepared beyond just your down payment.

Myth #6: Renting is Cheaper than Owning

The Truth: Homeownership Can Be More Affordable in the Long Run

Many people assume renting is the more affordable option because you avoid property taxes, maintenance, and homeowner’s insurance. However, renting means:

- You’re not building equity – Rent payments don’t contribute to owning an asset.
- Rent can increase over time – Unlike a fixed-rate mortgage, landlords can raise monthly rent.
- Owning can be a valuable investment – As property values increase, homeowners benefit from appreciation.

While homeownership does come with additional costs, the long-term financial benefits often outweigh those of renting.

Myth #7: You Can’t Get a Mortgage with Student Loan Debt

The Truth: Many Buyers with Student Loans Qualify for Mortgages

Student debt is a common concern, but it doesn't automatically disqualify you from homeownership. Lenders look at your debt-to-income ratio (DTI) rather than just individual debts.

DTI is the percentage of your income used to pay monthly debts, including student loans. As long as your DTI is within reasonable limits (typically under 43%), you can still qualify for a mortgage.

If you're unsure, talk to a lender about options like income-driven repayment plans that may help lower your DTI.

Myth #8: You Should Pay Off All Debt Before Buying a Home

The Truth: Having Some Debt Can Be Okay

Contrary to popular belief, paying off all debt before buying a house isn’t always necessary—or even the best idea.

- Having an established credit history with on-time payments can improve your mortgage eligibility.
- Paying off debt aggressively before homebuying might drain your savings, leaving you without enough for a down payment or emergency fund.

Instead of focusing solely on paying off debt, aim for a balanced approach—maintain healthy credit while saving for your home.

Myth #9: The Interest Rate is the Only Thing That Matters

The Truth: Other Loan Terms Can Impact Your Costs

While a low interest rate is important, it's not the only factor to consider. Other things to keep in mind include:

- Loan term length – A shorter-term loan may have higher monthly payments but lower total interest.
- Mortgage points – You can pay upfront to lower your interest rate.
- Loan type – VA, FHA, and conventional loans have different benefits depending on your financial situation.

A great mortgage deal isn’t just about the lowest rate—it’s about finding the right balance between affordability and long-term financial health.

Final Thoughts

Buying a home is a major milestone, but don't let common mortgage myths hold you back. By understanding the truths behind these misconceptions, you can make smarter, more informed decisions about financing your home.

The key takeaway? Every homebuyer's situation is unique. Instead of believing everything you hear, work with a trusted lender to explore the best mortgage options for you.

Whether you're a first-time buyer or looking to upgrade, now you can approach homebuying with confidence, knowing fact from fiction. Happy house hunting!