5 More Mortgage Myths That Keep People From Homeownership
Beyond the well-known myths about down payments, credit scores, and PMI, several other misconceptions prevent qualified buyers from pursuing homeownership. These myths range from misunderstandings about debt and income requirements to confusion about the mortgage process itself. Let's debunk five more common mortgage myths that might be holding you back from achieving your homeownership goals.
Myth #1: Any Debt Disqualifies You
The Reality
Having debt doesn't automatically disqualify you from getting a mortgage. Lenders evaluate your debt-to-income (DTI) ratio, which compares your monthly debt payments to your gross monthly income. Most conventional loans accept DTI ratios up to 43-45%, FHA loans up to 50%, and some Non-QM loans even higher with compensating factors.
Student loans, car payments, credit card minimums, and other debts are factored into your DTI calculation, but they don't automatically prevent mortgage approval. What matters is whether your total debt obligations, including the proposed mortgage payment, fall within acceptable DTI limits.
DTI Calculation Example
Gross Monthly Income: $6,000
Proposed Mortgage Payment: $1,800 (includes principal, interest, taxes, insurance)
Car Payment: $400
Student Loans: $250
Credit Card Minimums: $100
Total Monthly Debt: $2,550
DTI Ratio: 42.5% (Within acceptable range for most loans)
If your DTI is too high, you have options: pay down debts before applying, increase your income, choose a less expensive home, or explore Non-QM loans with higher DTI allowances. Debt doesn't mean "no"—it just means you need to work within the numbers.
Myth #2: Renting Is Always Cheaper Than Buying
The Reality
Whether renting or buying is cheaper depends on your local market, how long you plan to stay, interest rates, and tax considerations. In many markets, monthly mortgage payments (including taxes and insurance) are comparable to or less than rent, with the crucial difference that mortgage payments build equity while rent payments build your landlord's wealth.
The rent-vs-buy calculation must consider more than just monthly payments. Homeownership provides equity building, tax deductions, inflation protection (fixed-rate mortgages don't increase while rents typically do), and long-term wealth accumulation. Renting offers flexibility and freedom from maintenance responsibilities, but it doesn't build wealth.
| Factor | Renting | Buying |
|---|---|---|
| Equity Building | None | Every payment builds equity |
| Tax Benefits | None | Mortgage interest & property tax deductions |
| Payment Stability | Increases annually | Fixed with fixed-rate mortgage |
| Flexibility | Easy to relocate | Selling takes time |
| Maintenance | Landlord's responsibility | Your responsibility & cost |
| Long-term Wealth | No asset accumulation | Builds substantial wealth over time |
The break-even point for buying versus renting typically occurs around 3-5 years, depending on your market. If you plan to stay in an area for at least that long, buying usually makes more financial sense than continuing to rent.
Myth #3: Pre-Qualification and Pre-Approval Are the Same
The Reality
Pre-qualification and pre-approval are distinctly different, and the distinction matters significantly when making offers on homes. Pre-qualification is an informal estimate based on self-reported information, while pre-approval involves verified documentation and a thorough credit check, resulting in a conditional commitment from a lender.
Pre-Qualification
- • Based on self-reported information
- • No documentation verification
- • No credit check (usually)
- • Takes minutes to obtain
- • Informal estimate only
- • Carries little weight with sellers
- • Free and easy to get
Pre-Approval
- • Requires full documentation
- • Income and assets verified
- • Hard credit check performed
- • Takes days to complete
- • Conditional loan commitment
- • Strong negotiating power with sellers
- • Shows you're a serious buyer
In competitive markets, sellers often require pre-approval letters with offers and may reject offers from pre-qualified buyers. Get pre-approved before house hunting to know your true budget and demonstrate to sellers that you're a serious, qualified buyer who can close the transaction.
Myth #4: You Need W-2 Income to Qualify
The Reality
While W-2 income is the most straightforward to document, lenders accept numerous other income sources including commission, bonuses, rental income, investment income, retirement distributions, alimony, child support, Social Security, disability, and more. Non-QM loans expand options even further with alternative documentation methods.
The key is proper documentation and meeting the lender's requirements for each income type. Some income sources require two-year histories, while others can be used immediately. Understanding how your specific income is evaluated helps you prepare the right documentation and set realistic expectations.
Acceptable Income Sources
Traditional Employment:
- • W-2 salary
- • Hourly wages
- • Commission (2-year history)
- • Bonuses (2-year history)
- • Overtime (2-year history)
Self-Employment:
- • Business income (tax returns)
- • 1099 contractor income
- • Bank statement income (Non-QM)
- • P&L statements (Non-QM)
Investment & Retirement:
- • Rental property income
- • Investment dividends
- • Retirement distributions
- • Social Security
- • Pension income
Other Sources:
- • Disability payments
- • Alimony (with documentation)
- • Child support
- • Trust income
- • VA benefits
If you have non-traditional income, work with an experienced loan officer who understands how to document and present your income in the most favorable light. The right expertise can make the difference between approval and denial.
Myth #5: Refinancing Is Always Expensive or Impossible
The Reality
Refinancing is a common and often beneficial financial move that millions of homeowners use to lower rates, remove PMI, access equity, or change loan terms. While refinancing does involve costs, these expenses can often be rolled into the new loan, and the long-term savings typically justify the upfront investment.
The key to successful refinancing is understanding your break-even point—how long it takes for your monthly savings to exceed your closing costs. If you plan to stay in your home beyond that point, refinancing makes financial sense.
Common Refinancing Scenarios
Rate-and-Term Refinance
Lower your interest rate or change your loan term (e.g., 30-year to 15-year). Common when rates drop significantly.
Cash-Out Refinance
Access your home equity for renovations, debt consolidation, or investments. Replaces your existing mortgage with a larger one.
PMI Removal Refinance
Refinance from FHA to conventional to eliminate mortgage insurance once you have 20% equity.
Consolidation Refinance
Combine first and second mortgages into one loan with a single payment and potentially lower overall rate.
Break-Even Analysis Example
Current Rate: 7.0% on $300,000 = $1,996/month
New Rate: 6.0% on $300,000 = $1,799/month
Monthly Savings: $197
Closing Costs: $4,500
Break-Even Point: 23 months (4,500 ÷ 197)
If you stay in the home beyond 23 months, refinancing saves money every month thereafter.
Don't let refinancing myths prevent you from exploring opportunities to improve your mortgage terms. When rates drop, home values increase, or your financial situation improves, refinancing can provide significant long-term benefits.
Ready to Separate Fact From Fiction?
Don't let mortgage myths hold you back from homeownership. Contact Matthew Victoria at PRMG for honest, expert guidance on your mortgage options. We'll help you understand what you truly qualify for and create a path to homeownership that fits your financial situation.
Key Takeaways
- Debt doesn't disqualify you—lenders evaluate your debt-to-income ratio, typically accepting up to 43-50%
- Renting isn't always cheaper—buying builds equity and wealth while rent payments don't
- Pre-qualification and pre-approval are different—get pre-approved for serious house hunting
- W-2 income isn't required—lenders accept numerous income sources with proper documentation
- Refinancing is common and often beneficial—analyze your break-even point to determine if it makes sense