Mortgage misconceptions: What homebuyers should know.

Buying a home is an exciting milestone, but it can also feel overwhelming. Between advice from friends and family, information online, and changing housing market conditions, it can be hard to know what’s true.

The good news? Many common beliefs about mortgages aren’t as rigid as they seem. You may not need a large down payment, perfect credit, or an ideal financial situation to become a homeowner.

Understanding how mortgages really work can help you feel more confident as you explore your options and prepare for homeownership.

Myth #1: You need a 20% down payment to buy a home.

One of the most common mortgage misconceptions is that you need a 20% down payment before you can buy a home.

While putting 20% down can help you avoid private mortgage insurance opens in a new window (PMI), many loan programs allow qualified buyers to put down much less. Some conventional loans require as little as 3% down, while FHA loans opens in a new window may require 3.5%. Eligible veterans and service members may qualify for VA loans opens in a new window with no down payment, and USDA loans opens in a new window may offer the same benefit in certain rural areas.

There may also be local or state assistance programs available to help eligible buyers with upfront costs.

“A common misconception is that homeownership is out of reach without a large down payment,” says Ann Marie Prohaska, president, real estate lending, Commerce Bank. “In reality, there are often more options available than buyers realize, especially for first-time homebuyers.”

Myth #2: You need perfect credit.

A strong credit score can help you qualify for better mortgage rates, but perfect credit isn't required.

Lenders look at your overall financial picture, including your income, debt levels, savings, and payment history. Some loan programs are designed to help buyers who are still working to improve their credit.

If your credit score isn’t where you’d like it to be, taking steps such as paying bills on time and reducing credit card balances may help strengthen your application over time.

Myth #3: Mortgage approval is based only on your credit score.

Your credit score is important, but it’s only one piece of the puzzle.

When reviewing a mortgage application, lenders typically consider:

• Income and employment history
• Debt-to-income ratio (DTI)
• Credit history
• Available savings and assets
• Financial documentation such as pay stubs, tax returns, and bank statements

Understanding these factors can help you better prepare before applying for a mortgage.

The Preapproval Process

Preapproval is a more detailed review of your finances and can help demonstrate to sellers that you're a serious buyer.

According to Prohaska, “Preapproval is a valuable step in the homebuying journey. Starting these conversations early can help buyers understand their budget, strengthen their confidence, and be better prepared when they find the right home.”

Myth #4: Rates are at historic highs.

Rates are not at historic highs right now. It may seem high compared to the 3% rates from 2020, but rates have normalized over the past four years. Also, not every mortgage works the same way.

A fixed-rate mortgage keeps the same interest rate for the life of the loan, which can provide predictable monthly payments. An adjustable-rate mortgage (ARM) typically starts with a lower rate that may change later based on market conditions.

The right choice depends on your financial goals, budget, and how long you expect to stay in the home.

Myth #5: The mortgage payment is the only cost to budget for.

When planning for homeownership, it’s important to look beyond principal and interest. Other expenses may include property taxes, homeowners insurance, utilities, private mortgage insurance (PMI), closing costs, HOA fees, and ongoing maintenance and repairs. These costs can vary depending on the home and location, but they all play a role in affordability.

Taking the time to understand the full cost of owning a home can help you create a more realistic budget, avoid surprises, and feel more confident about your homebuying decision.

“The most successful homebuyers are usually the ones who take time to understand the full cost of homeownership before they buy. Looking beyond the mortgage payment can help you build a budget that supports your goals both now and in the future,” says Prohaska.

Myth #6: You need everything to be perfect before you can start preparing for homeownership.

You don’t have to have every detail figured out before exploring homeownership. In fact, taking small steps now can help you feel more prepared when the time is right to buy. Creating a realistic budget, building savings for a down payment and emergency fund, paying bills on time, and learning about available loan options can all help strengthen your financial foundation.

It’s also wise to avoid taking on significant new debt before applying for a mortgage, since lenders consider your overall financial picture when evaluating a loan application. The earlier you start preparing, the more time you’ll have to build knowledge and understand your options.

Moving Forward with Confidence

Homeownership may be more achievable than you think. By understanding the facts behind common mortgage myths, you can make informed decisions, prepare financially, and explore options that align with your goals.

Whether you’re just starting your homebuying journey or getting ready to apply for a mortgage, taking time to understand your options can help you move forward with greater confidence.

Explore the mortgage tools and resources from Commerce Bank to compare loan options, estimate monthly payments, and learn what steps may help you prepare for homeownership. Reach out to the Commerce Bank Mortgage team to connect with a mortgage banker when you’re ready to take the next step.