Myths can mess us up. If you believe the common myth that you need to wait 24 hours before reporting a missing person, for example, you can hamper the police's ability to find a missing loved one. If you believe that Vitamin C will knock out a cold, you can spend money needlessly on something that won't make your sniffles any better.

Even when it comes to buying a home, there are myths that can hurt us -- financially or otherwise. Here are seven common myths related to real estate. See which ones you've fallen for and set yourself straight.

letters saying myth vs reality

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Mortgage myth No. 1: A home is a great investment.

It's tempting to think of a home you buy as a great investment that will build your net worth considerably. Well, disabuse yourself of that notion. Real estate expert Robert Shiller has studied the matter and reported that between 1890 and 1990, home prices did rise faster than inflation, but only by an average of 0.21% per year. Between 1950 and 1997, they beat inflation by only 0.08%.

When you consider that by renting you can avoid property taxes, many maintenance and repair costs, and often lower insurance costs, as well, it can be the sounder financial choice. Monthly rent payments can be lower than mortgage payments, too, leaving more money left over for retirement savings or other needs and goals.

Still, it can be worthwhile to buy your own home -- if only for the peace of mind. Plus, the equity you build will have some value. So go ahead -- just don't expect to make a killing in real estate. It happens, but it's not the norm.

20 percent, written on a blackboard

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Mortgage myth No. 2: You need to put 20% down.

It's a myth that you need to fork over a 20% down payment on a home, borrowing only 80% of the home's value. The truth is that you can pay far less in a down payment -- sometimes just 5% or even less. Paying less than 20% will likely mean that you have to buy private mortgage insurance, though, costing you more. And it will put you in greater danger of being "underwater" on your mortgage, if your home ends up worth less than what you owe on it. In such cases, it can be hard to sell the home, as you won't recoup enough to pay off your loan.

While it's a myth that you have to pay 20% down, it's still a rather sensible thing to do, if you can.

Mortgage myth No. 3: You can't buy a home if you have a lousy credit score.

It's not true that a low credit score will keep you from being able to buy a home. It is true that it will keep you from being offered great interest rates, though. Here's what a difference a strong credit score can make:

FICO Score

APR

Monthly Payment

Total Interest Paid

760-850

3.879%

$941

$138,735

700-759

4.101%

$967

$147,945

680-699

4.278%

$987

$155,378

660-679

4.492%

$1,012

$164,471

640-659

4.922%

$1,064

$183,087

620-639

5.468%

$1,132

$207,364

Data source: MyFICO.com. 

It's worth delaying buying a home for a bit, while you work to increase your credit score. Some ways to improve your credit score include paying bills on time and paying off a lot of debt to lower your debt-to-available-credit ratio. Lenders like to see you owing only about 10% to 30% of the sum of all your credit limits, because it suggests that you have your debt under control and can afford to take on some more debt via the mortgage you're seeking. You can get free copies of your credit reports once a year from each of the main credit reporting agencies -- do so and correct any errors on them.

something stamped "approved"

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Mortgage myth No. 4: Once you're pre-approved, you're all set.

Once you decide you're ready to make an offer as soon as you see a home you want, get pre-approved for a mortgage. That can make you a more competitive buyer, putting you ahead of those who are merely pre-qualified and those who have not even consulted with a lender. Pre-approval doesn't mean you're all set, though. You'll be continuing in the mortgage-securing process, with the bank asking for all kinds of documentation related to your income and financial health. If you're self-employed, or have a new job, you might be seen as a riskier bet and might have to answer more questions and supply more information. You're not done until the underwriters have cleared you for your closing. (It can help to not be trying to buy more house than you can really afford, as that makes you a riskier bet to lenders. You don't want to stretch yourself too thin, with little margin of safety.)

Mortgage myth No. 5: 30-year fixed-rate mortgages are best.

Thirty-year fixed-rate mortgages are by far the most common home loans, but they're not necessarily the best kind for you. If you can afford the higher payments of a 15-year mortgage, you'll be able to pay off your home much sooner (which can be very desirable if you're approaching retirement) and you'll pay far less in interest. A great compromise is to get a 30-year loan with no prepayment penalty, and then pay significantly more than your required payment each month. That way you can shave many years off the loan and avoid a lot of interest payments.

If you're not planning to be in the home long, an adjustable-rate mortgage could serve you better in today's low-interest rate environment, as it can lock in ultra-low rates for a few years. If you think you'll be in the home for decades, though, it can be better to lock in a low rate for the expected long life of the loan -- especially because interest rates have started inching up.

Someone handing over a fat pile of money

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Mortgage myth No. 6: It's important to pay off your mortgage as soon as possible.

It can seem quite sensible to pay off your mortgage as soon as you can, but it's not always your best move. That's especially true in our current low-interest rate environment. If your mortgage has a 4% interest rate and you pay an extra $1,000 toward it, it's like earning a 4% return on your money, as you'll be avoiding paying 4% interest on it. But compare that to other things you could do with the money. If you could instead invest it in a retirement account where you expect to earn at least 6% or 8% on average over the long run, then that's arguably a better use of the money. Note, too, that mortgage interest payments are deductible -- though there's some murmuring in Washington that that might change in the future. Another consideration is whether you have any high-interest rate debt, such as that from credit cards. If you do, paying that off is a much higher priority.

Paying off your mortgage early isn't a terrible thing to do, and there are definite upsides, such as peace of mind. Just be sure to consider all your options for any extra money.

Mortgage myth No. 7: It's too late to refinance.

Finally, don't assume that as interest rates have been inching up, that it's no longer worth refinancing your mortgage. A rule of thumb is that if current interest rates are at least about a percentage point higher than your current loan's rate, refinancing is likely to be worthwhile. Just be sure you plan to remain in the home long enough to offset the closing costs of the refinancing.

Get your mortgage facts and myths straight and you'll make much better decisions as you buy a home and manage your personal finances. You can save tens of thousands of dollars in the process, too. 

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