10 Common Mortgage Myths, Debunked

Myth 1: Pre-qualified means pre-approved

The facts: A pre-qualification is a quick estimate based on what you tell a lender. A pre-approval involves a full application, a credit check and verified income and assets. Sellers take a pre-approval much more seriously. Our mortgage process guide explains both.

Myth 2: You need 20% down

The facts: Many loans require far less. VA and USDA loans often require nothing down, FHA starts at 3.5% and some conventional programs allow 3%. Twenty percent is simply the point where a conventional loan no longer needs mortgage insurance. See our guide to saving for a down payment.

Myth 3: A 30-year fixed is always best

The facts: A 30-year fixed-rate loan offers predictability, but it isn’t automatically the right choice. A 15-year loan may save interest if you can handle a higher payment, and an adjustable-rate mortgage may suit someone who expects to move or refinance within a few years. Our guide to choosing the right home loan compares them.

Myth 4: Your own bank will give you the best deal

The facts: Loyalty doesn’t guarantee the best terms. Comparing offers is one of the most effective ways to save, and mortgage credit checks within a short window count as a single inquiry. Use each lender’s Loan Estimate to compare side by side.

Myth 5: You need perfect credit

The facts: Each program sets its own standards. FHA, for example, allows scores well below what many people expect, with a larger down payment at the lower end. Patriot works with scores down to FHA’s floor of 500 (subject to change). Better credit can improve your rate, but it isn’t required to buy.

Myth 6: All mortgage companies are the same

The facts: Mortgage companies differ in the loan programs they offer, their guidelines, their costs and their service. Ask which programs you qualify for and how quickly the team responds. Our list of questions to ask your loan officer helps.

Myth 7: Both borrowers’ scores count the same

The facts: For joint applications, lenders typically pull three credit scores for each borrower and use each person’s middle score. Many programs then use the lower of the two middle scores, though some now average them. If one borrower’s credit is much weaker, ask your loan officer how that affects your options.

Myth 8: You can never get a mortgage after bankruptcy

The facts: You can, after a waiting period. For conventional loans, Fannie Mae generally requires four years after a Chapter 7 discharge and two years after a Chapter 13 discharge, with shorter periods for documented extenuating circumstances. FHA and VA waiting periods are often shorter. Rebuilding credit during that time helps.

Myth 9: The monthly payment is the only cost

The facts: Plan for the down payment, closing costs, inspections, moving costs, and ongoing costs like taxes, insurance, maintenance and HOA dues. Your Loan Estimate itemizes the loan costs.

Myth 10: If you’re approved for it, you can afford it

The facts: An approval reflects what a lender will lend, not what fits your life. Lenders don’t see your savings goals, childcare costs or travel plans. Build your own budget and shop at the payment you’re comfortable with. Our guide to how much house you can afford walks through it.

Still unsure what’s true for you? A loan officer can answer your questions based on your situation, not general rules of thumb.

This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

Sources

• Fannie Mae Selling Guide, B3-5.3-07: Significant derogatory credit events, waiting periods
• Consumer Financial Protection Bureau, What exactly happens when a mortgage lender checks my credit?
• Consumer Financial Protection Bureau, FHA loans
• U.S. Department of Housing and Urban Development, Single Family Housing Policy Handbook 4000.1