- “A 20% down payment is always needed”: The Federal Housing Administration (FHA) enables qualified buyers to pay less. With an FHA loan, you may be able to pay as little as 0% up front.1 You will likely have to buy private mortgage insurance (PMI), but paying the 20% threshold doesn’t mean you won’t need PMI.
- “Your credit score must be perfect”: It does not. If you pay your credit cards on time and don’t miss payments, your debt may not affect lenders’ decisions. However, a high score may qualify you for lower FHA mortgage rates, for example.
- “Pre-approval is a done deal”: This increases your competitiveness as a buyer, but only opens you up to further vetting by the bank. Additional documentation will be needed to secure FHA loans, VA loans, or other mortgages.
- “30-year mortgages are best”: Not if you can afford higher payments. Pay off the mortgage loan sooner, and you can save on interest. The benefits (of 15-year mortgages) can be higher for an adjustable rate rather than a fixed-rate mortgage.
- “I can’t refinance”: People often think their window of opportunity has closed because interest rates have risen. Refinancing can be a good move if interest rates are a percentage point above the loan’s rate and you plan on maintaining ownership for a while.
Understanding how mortgages work can help you get home loans in a variety of financial situations. Common mortgage myths provide the wrong information. You may, therefore, miss out on buying a home or on key financial benefits from your mortgage company. Common myths include: