Homebuying Myths That First-Timers Tend to Believe

The 20% figure has roots in conventional lending, where a down payment at that threshold lets borrowers avoid private mortgage insurance (PMI). But it is far from the only path. FHA loans — backed by the Federal Housing Administration — can require as little as 3.5% down for qualifying borrowers. VA loans for eligible veterans and active-duty service members, and USDA loans for certain rural areas, may require no down payment at all. Conventional loans backed by Fannie Mae and Freddie Mac offer options starting at 3% for first-time buyers.

The trade-off is real: a smaller down payment typically means a larger loan balance, higher monthly payments, and, in many cases, a PMI premium added to your bill. But waiting to save 20% can also cost opportunity. See our guide to down payment amounts for a clear breakdown of how each option affects your loan and monthly costs.

The rent-versus-buy debate is more nuanced than the popular framing suggests. When you rent, you are paying for shelter, and that is not waste. When you buy, a significant portion of early mortgage payments goes toward interest rather than equity. Add property taxes, insurance, maintenance (often estimated at 1–2% of home value per year), and closing costs, and the financial equation shifts considerably. In high-cost markets or when buyers plan to move within a few years, renting can be the more financially sound choice.

Homeownership can build long-term wealth through equity and, historically, appreciation — but it comes with risks too. Our related article on housing price misconceptions examines why home values don't always rise as reliably as people assume.

These two terms sound interchangeable but mean very different things. A pre-qualification is typically a quick, often online assessment based on information you provide — income, debts, assets — without verification. It gives you a rough sense of what you might borrow, but sellers and their agents know it carries little commitment. A pre-approval, by contrast, requires submitting documentation: pay stubs, tax returns, bank statements, and consent for a hard credit pull. The lender then issues a conditional commitment letter for a specific loan amount.

In competitive markets, many sellers will not entertain offers from buyers who lack a pre-approval letter. Going into a home search without one can mean losing a home you want to a better-prepared buyer. The homebuying process overview walks through when and how to get pre-approved as part of a complete step-by-step guide.

Credit scores matter — a higher score generally means a lower interest rate — but lenders work with a wide spectrum of credit profiles. FHA loans, for example, have historically been accessible to borrowers with scores as low as 580 with a 3.5% down payment, or even lower with a larger down payment, depending on the lender. Conventional loan thresholds typically start around 620. What matters is the full picture: income, employment history, debt-to-income ratio, and savings all factor into a lender's decision alongside the credit score.

If your score needs work, meaningful improvement is possible over time by paying bills on time, reducing credit card balances, and avoiding new hard inquiries before applying. Rushing into homeownership with shaky overall finances, however, carries its own risks — our article on buying before you're financially ready outlines the warning signs worth reviewing first.

Closing costs alone typically range from 2% to 5% of the loan amount and cover expenses such as lender fees, title insurance, appraisal, attorney fees (in some states), and prepaid property taxes and insurance. On a $300,000 home, that is $6,000 to $15,000 due at closing in addition to your down payment. After move-in, property taxes, homeowners insurance, and utility costs begin immediately. Maintenance is unavoidable: appliances break, roofs age, HVAC systems need servicing. A general rule of thumb is to budget 1–2% of the home's value annually for upkeep, though older homes may require more.

First-time buyers who focus only on the mortgage payment can find themselves financially stretched when the first major repair arrives. Building a realistic post-purchase budget is as important as qualifying for the loan itself.