Financial Tips to Do Better

At a Glance:

Ready to ditch mortgage myths and finally own a home? You don’t need 20% down, flawless credit, or the absolute lowest rate. Renting isn’t always cheaper, ARMs can be a smart strategy, and closing costs and loan terms are flexible, so you can land a mortgage that actually fits your life and goals.

Let’s Bust Some Mortgage Myths!

Don’t let the idea of owning your own home stay out of reach. It’s the dream many people think they have to wake up from, but what if I told you some of the things you’ve heard that might be holding you back aren’t true?

We don’t have any fancy berets or a TV show, but we’re still going to break down seven common mortgage myths that might be holding you back from purchasing your own home.

The homebuying process involves many moving parts, and that complexity leaves plenty of room for myths and misconceptions to spread. I’m going to help you become more confident in the homebuying process, so all you have to worry about is finding the perfect house.

Myth #1: You Need 20% Down to Buy a Home

It’s a common belief that you must make a 20% down payment when buying a home. While putting 20% down helps you avoid private mortgage insurance (PMI), it’s not a requirement.

There are a variety of mortgage programs that offer low-to-no down payment requirements, making homeownership more accessible for many people. FHA loans allow as little as 3.5% down, VA loans provide no-money-down options for eligible borrowers, and many state and local programs help first-time buyers minimize upfront costs.

For example, let’s compare different down payment amounts on the same $400,000 home:

• 20% down = $80,000
• 3.5% down = $14,000

At Atlantic, depending on your credit and requirements, you can secure a low-down payment mortgage that matches your budget. Buying a home is possible even if you don’t have decades of savings set aside.

Myth #2: Renting is Always Cheaper

Renting can feel like a burden and a boon. A landlord should take care of repairs and maintenance, but they can also evict you from your apartment or raise rent with little notice. 

Many renters assume they’re saving money compared to homeowners, but that’s not always the case. Monthly rent can easily equal or even exceed a mortgage payment for a similar home.

The bigger difference is what you get in return. Rent only covers today’s housing, but mortgage payments help build ownership and long-term wealth.

Let’s examine two similar scenarios, one with rent and another with a mortgage:

• Rent: Paying a landlord $2,000 in rent each month adds up to $24,000 a year. Once your payment is made, you do not earn equity or any potential return.
• Mortgage: Each $2,000 monthly mortgage payment builds equity in your property. As a homeowner, you can affordably tap into your equity to remodel your home, pay for higher education, and consolidate debt. Plus, your property’s value may appreciate over time allowing you to sell it and earn a substantial gain.

Myth #3: Adjustable-Rate Mortgages (ARMs) are Bad

Adjustable-rate mortgages often get a bad reputation for being risky, but that’s not the whole story. In many instances, they’re a wise choice for specific buyers.

An ARM offers a lower, fixed introductory rate for the first several years. Then, the rate can adjust based on the economy.

• For example, a 5/1 ARM means the loan rate over the first (5) years is fixed. After five years, the mortgage rate can adjust annually.

For first-time buyers moving into a starter home, ARMs are an ideal strategy. They will experience lower rates and payments at first while they settle into being homeowners. Then, once they’ve built equity, they can sell the house and move into a larger home before the adjustments ever take place.

Myth #4: Your Credit Must Be Perfect

Your credit controls a lot of your financial opportunities in life, and at Atlantic, we try to stress the importance of tracking and improving your score. SavvyMoney in Digital Banking allows you to check your monthly credit report for free, and we’ve written a few Financial Tips to Do Better, all about how to improve your score, such as Easy Ways to Avoid Bumps in Your Credit Journey!

However, contrary to popular belief, perfect credit isn’t a requirement for a mortgage.

Unlike credit cards or personal loans, mortgage lending takes a broader view of your full financial picture. A steady income, manageable debt, and a reasonable down payment often outweigh a few credit blemishes. Plus, the home itself serves as collateral for the loan, which gives lenders more security.

Myth #5: The Lowest Rate is Always Best

While everyone wants to secure the lowest rate possible, it’s not the only factor to consider. The “best” loan is the one that fits your budget and long-term goals, not just the one with the lowest interest rate. Empower Your Future: Invest In Yourself and Unlock Financial Freedom can help you prepare your budget so you can make your search confident in what you can manage to pay.

For example, a lower interest rate might come with:

• Higher upfront costs (prepaid points, closing costs, down payment)
• Unfavorable terms (15-year vs. 30-year loan, pre-payment penalties)
• Loan structure that doesn’t align with your lifestyle (traditional vs. adjustable-rate mortgage)

Evaluating the whole picture helps ensure your mortgage supports your finances, not the other way around.

Myth #6: Pre-Qualification = Pre-Approval

These two terms may sound similar, but their meanings are as different as night and day:

• Pre-qualification is a quick estimate of how much you can afford, based on basic information you provide to a lender. A pre-qualification is helpful for budgeting and browsing within your means. It gives you a ballpark figure but comes with no guarantees.
• Pre-approval means a lender has thoroughly reviewed your finances, credit report, and supporting documentation. It’s an official green light for how much you are approved to borrow.

The difference between these two terms matters tremendously when you’re ready to make an offer on a property. Pre-approval is provided on a case-by-case basis, but it can provide buyers who want to shop seriously with extra credibility and peace of mind.

Myth #7: Closing Costs are Fixed

Closing costs are not a set amount, and they vary for every property transaction. The expenses associated with closing on your mortgage loan include lender fees, title and appraisal costs, prepaid property taxes, and homeowner’s insurance.

On average, closing costs for buyers range from 3% to 6% of the home’s purchase price. For example, closing costs on a $250,000 home could range anywhere from $7,500 to $15,000.

By including these expenses in your overall homebuying budget and asking about available assistance programs, you can approach closing day with greater confidence.

We’re Here to Help!

So, what do you think? Our myth busting didn’t have any explosions or crazy experiments, but hopefully its left you a little more confident that your home owning dream isn’t as far out of reach as you thought.

If you have questions about the homebuying process or would like to speak with a mortgage specialist, we’re ready to help. Please call 800-834-0432 or visit any of our branch locations to schedule an appointment with a team member.

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The Atlantic blog strives to deliver informative, relevant, and sometimes fun financial information. If you enjoyed this article, please forward it to a friend.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.