Common Buying Myths Debunked

BY THE PERK LENDING TEAM | August 20, 2023 | 3-minute read

Buying a home is one of the largest purchases you will make. For this reason, we want to dispel some of the most common mortgage myths when buying.

Myth #1: You need a 20% down payment

This is the biggest misconception about purchasing a home that ultimately dissuades a lot of qualified people from buying. You do not need 20% down. There are mortgage programs that require as little as a 3% down payment.

In 2022, the average down payment for first-time buyers was 6%. For non-first-time buyers, the average down payment was 17%. There are many niche programs that can work in tandem with low down payment loan options - all of which are designed to make homeownership more accessible.

It’s important to note that the down payment is just one component of total costs due at closing. Some of the other costs include title service fees, state taxes, funding escrow, etc. When taking all fees into account, be prepared to pay between 5-10% of the purchase price for your first home.

Myth #2: You should go with the lender offering the lowest interest rate

If myth #1 is the biggest misconception, myth #2 is the biggest mistake. Everyone wants an interest rate as low as possible, but the cost of the interest rate at closing is just as important as the interest rate itself. Overpaying for your interest rate will offset the benefits of a lower rate.

Additionally, the interest rate is just one component of total mortgage costs. Lenders are very good at hiding unnecessary fees throughout the loan process- application fees, document preparation fees, processing fees, etc. When rate shopping, ask the lender for a loan estimate to see an itemized list of all fees.

Myth #3: I should pay points to get the lowest interest rate

The lowest available interest rate is not always the best strategy. Several other important factors matter when deciding what to pay for an interest rate. Would a higher interest rate strain your monthly budget? Would paying points for a lower interest rate deplete your savings? Will you be in the property long enough to make paying for points worth it? Depending on the answer to these questions, paying for points may not be advantageous for you.

Note: At Perk, we take into consideration your budget and financial goals when showing you interest rate options. During our consultations, we show how each rate option plays out from a short- and long-term perspective. You are not only actively involved in the interest rate discussion but also the decision, so you can go to the closing table with confidence.

Myth #4: I should find a home before applying for a mortgage

Why shop before knowing how much you can afford? Applying for a mortgage is part of the prequalification process. Your mortgage application, credit report, and preliminary documents are reviewed together to determine the loan amount you potentially qualify for.

There are other benefits to getting prequalified besides letting you know how much you can afford. Your realtor will be able to find specific properties and negotiate better terms based on your constraints. Additionally, prequalification will uncover any issues or hurdles that could potentially jeopardize closing. It positions you to make a stronger offer once you find the home you want.

We recommend everyone get pre-qualified before shopping for a home. A strong pre-qualification from Perk Lending will set you apart from other bidders. If you are ready to begin, contact us to see how we can help you in your homebuying journey.

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