5 Mortgage Myths Debunked

Here’s what you should know about home buying!

Buying a home is one of the biggest decisions you’ll ever make, and naturally, there’s a lot of advice out there! But with so many myths floating around the mortgage world, it’s easy to get confused. 

As a mortgage lender here in Canon City, I’ve heard the same myths over and over from clients, and I’m here to clear things up. There’s a lot more flexibility and opportunity in home financing than most people realize.

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

The dreaded 20% down payment! This myth holds a lot of people back from even considering buying a home because they believe they need to save tens of thousands of dollars before they can even start the process. But here’s the truth: you don’t need a 20% down payment.

In fact, the average down payment for first-time buyers is just 6%, and there are many loan programs that allow you to put down as little as 3% or even 0% in some cases.

For example, FHA loans (Federal Housing Administration loans) only require a 3.5% down payment, and VA loans (available to veterans and active military) require no down payment at all. And don’t forget about USDA loans, which also have zero down payment options for those buying in rural areas. 

So, if you've been putting off buying a home because you thought you had to save 20%, it’s time to rethink that strategy.

I’ve worked with many clients who were under the impression they needed a hefty down payment, but once we dug into their options, we discovered they could buy a home with much less money down. There are also programs available to help with down payments, so don't be discouraged if your savings aren’t quite where you want them to be.

Myth #2: You Need Excellent Credit to Get a Mortgage

Another myth I hear frequently is that you need perfect credit to qualify for a mortgage. While it’s true that a higher credit score generally leads to better mortgage rates and terms, you don't need perfect credit to secure a loan.

In fact, FHA loans allow buyers with credit scores as low as 580 to qualify, and if you have a score above 620, you’ll likely be able to access more competitive interest rates with conventional loans. Even if your credit is less than stellar, there are plenty of options available to help you get into a home.

I've helped clients with scores in the 600s and even below to secure financing with the right guidance. We worked together to find the right loan program that fits their financial situation, and it ended up being much easier than they expected.

Myth #3: Renting is Cheaper Than Buying

Here’s a myth that I’ve seen hold a lot of potential buyers back: the idea that renting is always cheaper than buying. Many people think they’ll save money by renting, but that’s not always the case.

When you rent, your monthly payments go directly to your landlord, and you don’t build any equity. But when you own a home, your mortgage payments (assuming you have a fixed-rate mortgage) stay the same for the life of the loan. Plus, over time, your home can appreciate in value, meaning you’re investing in something that could grow in value and benefit you financially in the long term.

Consider this:
A mortgage can be comparable to what you're already paying in rent, and you may qualify for tax breaks on your mortgage interest and property taxes, which renters can’t take advantage of. Additionally, owning your home builds equity, while renting just puts money in someone else’s pocket.

I’ve helped many clients look at their monthly expenses and realize that buying a home is actually more affordable than they thought. With the right financing options and a little planning, homeownership could be just as attainable—and in some cases, more affordable—than renting.

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

If you’ve been shopping for homes, you’ve probably heard the terms pre-qualification and pre-approval tossed around. A lot of people believe these terms are interchangeable, but they’re actually quite different.

• Pre-qualification is a basic estimate of how much you might be able to borrow based on self-reported information. It’s quick and simple but doesn’t carry much weight with sellers.

• Pre-approval, on the other hand, involves a thorough review of your finances, including your credit report, income, and debt. This process is more in-depth, and once you're pre-approved, sellers know you’re serious and capable of securing a loan. A pre-approval letter shows that you've already been vetted by a lender, which can give you a competitive edge in a tight market.

I always recommend that my clients get pre-approved before they start house hunting. Not only does it show you’re ready to buy, but it helps you understand how much you can afford so you’re not looking at homes that are out of your price range. Plus, with a pre-approval letter in hand, you’re in a stronger position to make an offer when you find the perfect home.

Myth #5: There’s Only One Type of Home Loan

This is another myth that’s surprisingly common: the idea that there’s only one type of mortgage loan. In reality, there are many different loan types to choose from, depending on your needs and financial situation. Some of the most popular options include:

• Conventional loans: These are traditional loans that are not backed by the government. They typically require a higher credit score and a larger down payment, but they offer flexible terms and competitive rates.

• FHA loans: These government-backed loans are ideal for first-time homebuyers or those with lower credit scores. They require a smaller down payment and have more lenient credit requirements.

• VA loans: Available to veterans and active-duty military, these loans offer the benefit of no down payment and no private mortgage insurance (PMI).

• USDA loans: These loans are perfect for those buying in rural areas and offer 0% down payment options for eligible buyers.

• Jumbo loans: For higher-priced homes, jumbo loans offer larger amounts than conventional loans, though they may come with higher interest rates.

I always take the time to review all available loan options with my clients to ensure they understand the differences. Whether you’re buying your first home or your fifth, there’s a loan out there that’s right for your unique financial situation. I’m here to help you find it!

The Bottom Line

With so many myths out there, it’s easy to get overwhelmed and feel unsure about the mortgage process. The good news is that you don’t need a 20% down payment, you don’t need perfect credit, and renting isn’t always cheaper than buying. Additionally, understanding the difference between pre-qualification and pre-approval, as well as knowing that there are multiple loan options available, can help you make more informed decisions.

Whether you’re ready to take the plunge into homeownership or just getting started, I’m here to guide you every step of the way. As a lender in Canon City and across Colorado, my job is to make the mortgage process clear and easy, helping you find the best loan options available based on your unique financial situation!

If you’re ready to learn more, don’t hesitate to reach out. I’m here to help you understand all your options and make the home-buying process a smooth, stress-free experience. Let’s bust those myths and get you into your dream home!

___

Debbie Betts, NMLS #259629, is a mortgage lender under The Mortgage Co. NMLS #68929. Her license #100030463. This is information purposes only and is not a commitment to lend. Equal housing opportunity.