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Myth vs. Reality: Debunking Common Mortgage Misconceptions

Owning a home can provide stability, build wealth, and create a space to truly call your own. But starting the process of getting a mortgage can be intimidating, especially for first-time buyers. 

One of the biggest obstacles can be the well-meaning but incorrect information from friends and family. There are many persistent myths and misconceptions surrounding mortgage loans and buying real estate that can cost you both time and money. 

Let’s separate fact from fiction, debunk the most persistent mortgage myths, and set the record straight for Chicagoland’s hopeful homebuyers

Myth #1: You Need Perfect Credit

While your credit score does play a substantial role in determining your creditworthiness (and your ability to pay back a loan), it doesn’t have to be a perfect 850 for you to qualify.

The minimum credit score required to buy a house can range from 500 to 700, and the exact number depends on a variety of factors such as what kind of loan product you choose, your location, the size of your down payment, employment history, and more. 

Conventional loans (the most common type of mortgage, accounting for about 70% of the market) typically require a minimum score of 620. Government-backed programs such as FHA, VA, and the USDA have much more flexible credit score requirements if you meet certain other criteria. In general, the minimum credit score for an FHA loan with a 3.5% down payment is 580, while borrowers with credit scores down to 500 can find a solution with a minimum of 10% down. 

Myth #2: The Process is Too Complicated

The truth is that accomplishing anything worthwhile takes education, diligence, and planning. There are many resources available online for those who are ready to learn more about where to start. 

It’s always smart to partner with an experienced real estate team, starting with a mortgage lender who can help you determine the best course of action and provide crucial information about your options. Buying a house is a major life event, and you can lower your stress levels by taking it one step at a time.

Myth #3: You Need a 20% Down Payment

One of the most persistent myths in the mortgage industry is the belief that you need to put down 20% of the home’s value to secure a mortgage. 

Yes, a 20% down payment can help you avoid private mortgage insurance (PMI) and potentially secure a lower interest rate (not always!), but it’s not a requirement for most mortgage programs. Some require as little as 3% down for certain conventional loans like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible

There are some benefits to making a larger down payment, but you don’t want to end up cash-poor — you should always have savings to cover emergencies, especially when buying a house.

Myth #4: You Can’t Buy a House when you have a Student Loan or Medical Debt

While student loans can impact your debt-to-income ratio and available funds for a down payment, having this type of debt doesn’t preclude you from getting a mortgage. 

Lenders evaluate your overall financial situation, including income, credit history, and existing debt burden. As long as your student loan payments are manageable and you meet other qualifying criteria, you can still buy a home.

Two years ago, the major credit reporting agencies (Equifax, Experian, and TransUnion) made it easier for people with medical debt to improve their credit scores, but over 15 million people are still suffering the effects of unpaid healthcare bills

Monitoring your credit report carefully is crucial, as inaccuracies are common. If you find serious errors that can affect your score, file a dispute with the credit reporting agency.

Myth #5: You Can’t Get a Mortgage If You’re Self-Employed

Self-employment doesn’t automatically disqualify you from getting a mortgage, but it may introduce some additional documentation requirements

Lenders usually want to see at least two years of consistent self-employment income, as verified by tax returns, profit and loss statements, and other financial records. If you’ve owned a business for a number of years, you may only need the most recent year’s tax return. 

If you can document a stable, recurring income stream and meet other qualifying criteria, you may want to explore the world of portfolio products and other alternative financing methods.

Myth #6: It’s Better to Rent Than Buy

There are a lot of upfront costs associated with buying real estate, and while renting can be less expensive in the short term, it’s smart to think about your long-term goals and your specific financial situation before you decide becoming a homeowner is off the table.

Your rent payments go to pay off someone else’s, while mortgage payments contribute to building home equity, which can quickly grow into one of your most valuable assets. Additionally, with a fixed-rate mortgage, your monthly payment remains stable over time, unlike rents (and home prices) which can increase year after year. 

Statistically speaking, this all plays out, as the average homeowner has accumulated FORTY TIMES more net worth than the average renter

Myth #7: All Mortgage Lenders are the Same

Fact: today’s consumers have a wide array of choices when it comes to finding and financing the perfect residence, especially in the vibrant Chicagoland market.

A qualified real estate team and the right mortgage lender can be an invaluable advantage, offering personalized service, access to a wider range of loan products, and highly competitive rates and fees. I can help you demystify the mortgage process and become a homeowner this year — reach out to me today!

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