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10 Common Myths About Mortgage Lending

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There are many myths and discrepancies of information when it comes to mortgage lending. Understanding these myths can empower you to navigate the mortgage process effectively and make informed decisions for your homeownership journey.

  1. The Myth: “You need a 20% down payment.” While putting down 20% allows you to avoid private mortgage insurance (PMI), it’s not a hard requirement. Many conventional loans allow as little as 3% down; government-backed loans like USDA, FHA, or VA can have even lower requirements (or none at all).
  2. The Myth: “You need perfect credit.” The FICO requirement is 550, with some programs offering loans for scores as low as 500. While good credit will get you better rates, a flawless score isn’t essential. Lenders consider various factors for qualification, and options really open up with a FICO score past 680.
  3. The Myth: “Shopping around hurts your credit.” Multiple credit inquiries within a short period (usually 45 days) are grouped as one by credit bureaus. The FICO scoring model allows for multiple credit pulls of the same type within a 4-month period with no effect on your score.
  4. The Myth: “All lenders are the same.” Different lenders offer varying rates, terms, and options. Being turned down or offered unfavorable terms by one lender does not mean this would be true across the board.
  5. The Myth: “Only banks offer mortgages.” Don’t limit yourself solely to your bank. Choosing a local, reputable loan officer who lives and works in your community is always best. In most cases mortgage brokers can offer the most competitive rates and terms as they are not held to the regulations and pricing of only one bank, they have many options.
  6. The Myth: “A 30-year fixed mortgage is the only option.” Adjustable-rate mortgages (ARMs) can offer lower initial rates and flexibility; though they may adjust later, this adjustment is on a pre-planned schedule. Consider your financial goals and risk tolerance when choosing a term.
  7. The Myth: “Once pre-qualified, you’re pre-approved.” Pre-qualification is a quick estimate based on limited information. Pre-approval involves a deeper dive into your finances and documentation, offering a stronger indication of loan approval. You want to ensure that your mortgage has been fully pre-approved before shopping for a home. 
  8. The Myth: “Lower interest rate always means cheaper mortgage.” Other fees and closing costs can significantly impact the total cost. Focus on the overall loan package, not just the headline rate. Many lenders offer a low rate, which can translate to hidden fees or high costs. Again, you will want to work closely with a local realtor and lending team that you can trust to go over all terms clearly. 
  9. The Myth: “Finding a house comes first.” Get pre-approved before house hunting. Knowing your budget and borrowing power will streamline your search and make offers more competitive. Many sellers will not allow an appointment to preview their property without a loan approval letter. Also, keep in mind that pre-approval can take time, and if you find a property that you would like to offer on, you’ll wish you had that preapproval! There is no reason at all to wait on getting preapproved; there are many, many reasons not to wait. Get the loan in place and then shop at your leisure! 
  10. The Myth: “Mortgage approval = you’re done.” Your current approval status is based on your current information. If your information changes, then your approval status could change. Loan approval does not necessarily change or expire based on a timeline; it is solely based on your information. If your information does not change, then your approval status does not change.
Cynthia Reynoso
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