Don’t let these tall tales scare clients off.

Buying a home can be scary business. From daunting down payment amounts to potential credit score dings, it’s not entirely surprising when some potential buyers are shaking in their boots.

But you know that the truth isn’t quite so scary! So, you’ll need to communicate that many anxiety-inducing homebuying myths are just that — fiction.

We’ve rounded up some of the most common mortgage myths and debunked them one by one. So, you can help clients take on homebuying with confidence and courage.

Let’s dive in:

Myth: You Need to Put 20% Down

Lots of potential homebuyers believe that you have to save up a down payment totaling 20% of the home’s purchase price. Of course, this just flat-out isn’t true most of the time.

Explain to clients that sure, the more they put down the less they’ll pay in interest over time. And add that, with 20% down, they can forgo the added expense of private mortgage insurance. But at the end of the day, they need to know that 20% down isn’t a hard-and-fast rule for the vast majority of borrowers.

Be sure to drive home that different types of loan products entail distinct prerequisites in terms of the initial down payment sum. For example, they could explore an FHA (Federal Housing Administration) loan with as little as 3.5% down. Or, if they served in the military, share how they might even qualify for a home with 0% down via the VA (Veterans Affairs) loan.

Myth: You Can’t Buy a Home If You Have Student Loans

Many potential homebuyers today have some amount of student loan debt. For many in this camp, it might feel like a major roadblock in their path to homeownership.
But you know that student loan debt doesn’t prevent one from becoming a homeowner.

Educate potential borrowers on how student loans impact their debt-to-income (DTI) ratio. Walk through the calculation with them, dividing their total monthly debt by their gross monthly income. Explain that, if their answer is less than 36%, they could most likely be in the clear with a number of lenders.

You should also share how student loans can impact their credit score. A sample script might be:

“If you miss a payment, your score could drop, which won’t fare well with lenders. But, on the other hand, if you pay your full amount on time every month, your score could climb. That’s right, you can actually use that pesky debt to your advantage!”

Myth: If You’ve Been Denied a Mortgage Loan, You’ll Never Get Approved In The Future

Being denied a mortgage can take a real emotional toll. For certain clients, it can feel like the world’s ending. They might even get it into their head that they’ll never be approved.

If you have a client who’s been denied a mortgage before, or if they’re currently dealing with a denial, remind them that this isn’t the end of the road.

With your help, they can get to the bottom of their denial and you can make an action plan together! Whether it’s bad credit or an insufficient down payment amount, remind them that there’s almost always a productive path forward. This is where the social-emotional side of your job comes into play.

Pro tip: If you can, share a real-world example. Success stories about previous clients in a similar position might help make their dreams feel attainable once again.

Myth: Shopping Around for a Mortgage Hurts Your Credit Score

This is a common misconception. You’ll want to clarify that simply shopping around isn’t going to typically ding anyone’s credit.

Then, dive into soft credit pulls. A sample script might be:

“Before you formally apply, lenders will run only soft inquiries on your credit. These inquiries are used to screen potential borrowers before they submit an actual application and have no impact on your score.

Basically, they take a peek at your score (instead of doing a deep dive) to determine whether or not you might qualify for a loan.”

Then, naturally, you’ll need to cover hard pulls. Explain that, when they do find a lender and actually apply for a mortgage, the lender will then run a hard inquiry. This is the part where their score might dip a bit, likely around 5-10 points, so ensure they’re ready for that. Remind them that hard inquiries will drop off after two years but may stop affecting their score in as little as a few months.

Myth: You Can’t Get a Mortgage with Less-Than-Excellent Credit

 In the same vein, a lot of would-be borrowers are waiting for that far-off day when their credit score hits 800. They might not even know that buying before then is an option. And often a good one, at that! This is why personal financial education around homebuying is so important.

If you come across a client with this belief, go ahead and set them straight. Share some information on any home loan programs they might potentially qualify for at their current score.

Then, share some options that might be within reach with just a slight increase! This stretch goal might inspire them to improve their score even more aggressively.

Final Thoughts: Common Mortgage Myths

At the end of the day, these mortgage myths aren’t quite so scary.

Share with your clients that sure, buying a home can be complicated and emotional. But there’s no need to fear. If they arm themselves with education and find the right homebuying team, they can move past all their worries.

And who knows? This time next year, they could be handing out Halloween candy from their brand-new dream home!

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