Don't Let These Mortgage Myths Stop You From Buying a House

Falling for these myths can mean missing out on becoming a homeowner.

If you're financially prepared and make smart decisions, buying a home could be one of the greatest financial moves you make. Purchasing a home means you start building equity and benefiting from rising property values. In most cases, it increases your net worth over time as you acquire an asset with substantial value. It can also allow you to set down roots and put your stamp on your property.

Unfortunately, many people who want to buy a home put it off or don't take action because they believe some common mortgage myths.

Here are three misconceptions about homeownership that it's important to discard so you can make a more informed choice about purchasing a property.

1. You have to have a 20% down payment

Some would-be home buyers delay their purchase or believe they can't buy a home at all because they think they have to put down 20% to get a home loan.

A 20% down payment used to be standard -- and it is still ideal in most situations if you can make it happen. A large down payment reduces the risk that you end up with a mortgage for more than the property is worth, and it gives you the broadest choice of lenders and options, which can help you get a better interest rate. With 20% down, you also don't have to incur the cost of private mortgage insurance, which is usually required to protect lenders when a buyer has a smaller down payment.

But, it is far from required that you put down 20% to buy a home. In fact, most people who purchase properties have much less than this amount, and many lenders allow loans as low as 3% down -- or permit borrowers to get loans with no down payment at all.

If you can save 20% in a reasonable time, great. But if that's not feasible and you're otherwise well prepared to buy, don't let the lack of a down payment hold you back.

2. You need perfect credit

Some people interested in purchasing a home may be reluctant because they assume they need good or even perfect credit to land a competitive rate. While you should aim to improve your credit score to get the lowest-cost loan possible, those with negative marks on their credit reports don't have to put off the dream of homeownership. They also don't have to accept expensive subprime mortgage loans, which borrowers are right to shy away from.

There are a number of government-backed mortgage loans, including FHA, USDA, and VA loans, that are ideal for borrowers with imperfect credit scores. These loans are usually affordable -- though they may have more upfront fees than conventional loans -- and the credit score requirements are relaxed, so people with credit scores of even around 500 sometimes qualify to borrow.

3. You should wait for rock-bottom mortgage rates

Finally, some homeowners put off buying because they think they should wait for the lowest possible mortgage loan rate. Unfortunately, predicting when interest rates will drop is impossible. Borrowers can miss out on great buying opportunities at reasonable rates if they try to time a purchase perfectly.

Interest rates remain near historic lows right now, and borrowers who can afford a fixed-rate mortgage and are otherwise ready to buy shouldn't get hung up on hoping for a rate drop, but instead should focus on shopping for the best loan and finding a property that's right for them.

By learning the truth about these home-buying myths, you can aim to purchase a house when you are truly ready. Don't be deterred by misconceptions that can needlessly keep you from owning property.