Mortgage Myths That Confuse Even Repeat Homebuyers

The 20% figure originates from a real financial principle: putting down less typically means paying private mortgage insurance (PMI) — an added monthly cost that protects the lender if you default. However, PMI is not permanent. It can generally be cancelled once you reach 20% equity in your home. Loan programs backed by the Federal Housing Administration (FHA) allow down payments as low as 3.5% for eligible borrowers, and some conventional loan programs permit as little as 3%. VA loans, available to eligible veterans and service members, can require no down payment at all. For a full overview of loan types and who qualifies, see The Different Types of Home Loans, Explained.

A pre-approval letter tells sellers that a lender has reviewed your credit, income, and assets and is willing to lend up to a certain amount under current conditions. The interest rate you'll actually pay isn't secured until you formally request a rate lock with a specific lender on a specific loan. Rates can change between pre-approval and closing, sometimes significantly. Rate locks typically last 30 to 60 days and may come with fees for extensions. Understanding this distinction helps you time your lock strategically rather than assuming it happened automatically. Unfamiliar with terms like APR, LTV, or rate lock? Our mortgage glossary for first-time buyers defines them clearly.

This myth causes many buyers to commit to the first lender they speak with, leaving potential savings on the table. Major credit scoring models — including FICO — recognize that rate shopping is a responsible consumer behavior. Mortgage-related hard inquiries made within roughly 14 to 45 days (depending on the scoring version) are generally grouped and treated as a single inquiry. The actual score impact from a single inquiry is usually small. What matters far more to your score are your payment history and outstanding balances. Don't let this myth prevent you from comparing loan offers.

Longer loan terms reduce your required monthly payment, which can ease monthly cash flow. But that convenience has a cost: because you're borrowing money for a longer period, you pay more interest in total — often tens of thousands of dollars more over the life of the loan. A 15-year mortgage typically carries a lower interest rate and eliminates debt in half the time, though the monthly payment will be higher. Neither term is universally correct; the right choice depends on your income stability, other financial goals, and how long you plan to stay in the home. Run the numbers with multiple scenarios before deciding.

Credit score is one important input, but lenders take a holistic view of your financial profile. Your debt-to-income (DTI) ratio — the percentage of your gross monthly income that goes toward recurring debt payments — is a particularly critical measure. Most conventional lenders prefer a DTI below 43%, though requirements vary by program. Consistent employment history (typically two or more years with the same employer or in the same field) signals income stability. Lenders also verify that you have sufficient assets to cover the down payment, closing costs, and sometimes several months of reserves. A high credit score won't automatically overcome a DTI that's too high or a recent gap in employment.