Common Mortgage Myths, Misconceptions, and Mistakes

Read Time: 8 minutes

Purchasing a home is likely the largest financial transaction you will make in your lifetime. If buying involves financing via a mortgage loan, it pays to do your homework and learn the facts.

That’s because there are many rumors and fallacies around mortgages you can easily fall for as well as blunders you can make as a borrower.

Read on to learn some of the most widespread myths and mistakes shared by mortgage borrowers and how to sidestep these pitfalls and better ensure that you are approved for the right mortgage loan.

Common mortgage myths demystified

The process of shopping, applying, and getting approved for a mortgage loan can be complicated for many. After all, there’s math involved, and some forecasting is required to evaluate which loan programs are best for you.

So it’s not a surprise that many home loan candidates proceed with unrealistic expectations, false hunches, misinterpretations, and misinformation when pursuing financing. 

Myth #1: You need 20% down

“The most common myth I continue to hear is that you are required to have at least a 20% down payment on a home,” says Mason Whitehead, branch manager for Churchill Mortgage. “This is simply not true.”

Case in point: If you pursue a VA home loan or USDA rural property loan, you may qualify for zero down. An FHA home loan can be had for as little as 3.5% down.

And some conventional loans – including a conventional 97 loan, Fannie Mae HomeReady loan, and Freddie Mac Home Possible loan – require only 3% down to eligible borrowers.

Myth #2: Wait until things get more affordable

Another major myth that circulates? You should wait to purchase until interest rates and/or home prices come down.

“The number one apprehension I see with buyers today is around inflated interest rates on mortgages,” Vinnie Salemno, a licensed real estate agent with Equity Union, explains. “Many clients who wish to purchase are waiting for rates to drop to what we saw in early COVID days. But, as rates have been steadily declining for the past few months, more buyers today are now coming out of the woodwork, making competition all the more fierce. That means homes will probably only increase in price and decrease in supply.”

Whitehead agrees.

“Every client who has told me they wanted to postpone a purchase in the past three years has lost out on home equity and appreciation they could have accrued—not to mention the financial and tax benefits of owning a home. Every one of those people would have been better off financially if they had bought instead of continuing to rent,” adds Whitehead.

Myth #3: A fixed-rate 30-year loan is your best choice

Many borrowers are convinced that a 30-year fixed-rate mortgage loan is universally the best choice. But that’s not always the case.

“While it offers stability in payments, other options like adjustable-rate mortgages (ARMs) might suit some borrowers better, especially if they plan to move within a few years before the initial fixed-rate period ends and rates start to fluctuate,” says Dennis Shishikov, adjunct professor of economics at City University of New York. 

Also, the longer your term, the more you will likely pay in total interest. So if you can afford the higher monthly payments, opting for a shorter-term loan – like a 15- or 20-year mortgage – could save you thousands in interest.

Myth #4: You need good to great credit

While it helps to have a favorable credit score when applying for a mortgage loan, you don’t necessarily need great credit to get approved.

“In reality, while higher credit scores do get better interest rates, there are options for those with less-than-perfect credit, especially FHA loans that require only a 580 credit score,” says certified financial planner Jeff Rose.

Myth #5: Always opt for the lowest interest rate

Believing the lowest rate you are offered is the best choice for you is another common misconception shared by home shoppers. 

“It’s counterintuitive, but the lowest rate is often not the ideal choice because the fees the lender will charge to get you that lower rate are usually not in your best interests,” says Whitehead. 

It’s better to shop around among several different lenders and loan programs and compare rate quotes and offers carefully, looking closely at the total costs of the loan (including fees) as well as the terms and restrictions involved.

Myth #6: Your mortgage interest is deductible

While the interest you pay on your mortgage loan is often tax deductible, this will depend on individual circumstances and should not be assumed as a universal benefit. 

“The key is to review your eligible tax deductions with a tax professional and see what will be available for your situation, long before you commit to a loan,” advises Mark Worthington, senior loan officer for Churchill Mortgage.

Myth #7: It’s cheaper to rent

It’s true that, at the time of this writing, it’s often less expensive per month to rent than purchase a home. But that’s primarily true because mortgage rates and financing costs have increased at a faster and higher rate than average rent increases.

If mortgage rates continue to drop as they have been, it should be cheaper to own than rent in many markets.

Common mistakes borrowers make

In addition to falling for popular myths and erroneous beliefs, plenty of borrowers frequently make missteps in their home financing journey. Here are several of the most common ones.

Mistake #1: Having an insufficient down payment

Again, there are loan programs you may qualify for that don’t require any down payment. But the truth is that you’ll likely have to pay for costly mortgage insurance if you don’t put at least 20% down (except in the case of VA loans or USDA mortgages).

That’s why it’s best to make the largest down payment you can afford. Remember: The higher your down payment, the lower your interest rate will probably be.

“Start saving early and look into loans requiring lower down payments,” suggests Rose.

Mistake #2: Having insufficient reserves saved

Don’t forget: You’ll have to come up with closing costs once the loan is finalized, which can equate to 2% to 5% of your amount borrowed. 

“I always recommend that you have at least two mortgage payments saved in the bank after closing for some cushion. Plus, after you buy a home, you tend to make a lot of trips to the local hardware and furniture stores. Ultimately, you need to be mindful you don’t end up cash-poor after completing the transaction,” suggests Whitehead.

Mistake #3: Making large financial moves prior to closing

“The most common mistake we see is buyers making large financial moves – whether that means changing jobs, moving significant sums of money between accounts, or purchasing another large asset like a vehicle – while they are in the process of buying a home,” cautions Bethany Stalder, a Realtor and owner of Fidelis Property Group. 

Consider that getting a new credit card or line of credit or making a major purchase in the lead-up to your loan application can lower your credit score, which can hurt your chances of qualifying for a loan with a lower rate and better terms.

If you’ve applied for a mortgage loan and you are hunting for a home, talk with your lender before undertaking any of these major money moves.

Mistake #4: Not understanding the process

It’s easy to feel stressed and make poor choices if you lack financial literacy and real estate know-how. You could rush into a home buying/financing decision minus the proper facts and without crunching the numbers to know what you can afford. 

“I recommend people start learning how to buy a house long before buying. This will allow them time to budget, plan, and improve their credit,” says Worthington. 

You can take a free homebuying course offered by a local real estate organization, for example, or at the very least consult closely with a nearby lending expert and ask questions about anything you don’t understand.

Mistake #5: Don’t fudge on the facts

Never lie or report inaccuracies on your mortgage application or in answer to questions asked directly by your lender. These falsities can come back to haunt you in big ways.

“Being dishonest about income, for instance, can lead to loan denial or a loan that is unsustainable in the long run,” cautions Shirshikov. 

Best practices to avoid mortgage myths and mistakes

Armed with the right knowledge, you can improve your chances of getting the green light on a mortgage loan and not overpaying for financing over the long run.

“It’s a good idea to talk with a mortgage lender before you start seeing properties in person. It can also be useful to speak with your real estate agent while you are in the process of applying for a loan,” says Stalder. “Your agent should also have recommendations for reputable local lenders you can consider, and they can help you compare lenders once it comes time to make a decision.”

Many agents and lenders also host free home-buying seminars where you can begin familiarizing yourself with the process – a step the experts strongly recommend.

“Prospective borrowers should research different loan types, terms, and requirements thoroughly. Regularly check your free credit reports and use mortgage calculators to determine what you can afford,” advises Rose. “Additionally, consult with financial advisors and tax planners who can provide valuable insights.”

The bottom line

Don’t fall for the multiple misconceptions or make the same slipups suffered by many mortgage borrowers. Safeguard yourself by separating fact from fantasy and learning more about what’s actually required to get a mortgage loan today and ways to get the best loan deal you qualify for.

Kara Johnson

Kara is a Rye, New York-based author and contributing writer for She is a graduate of Hampshire College.

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