Homeownership: 4 Myths That Mistakenly Hold You Back

The housing market has been smoking hot in 2021, and many renters are looking into whether or not they can afford to make the leap to homeownership. But some renters are held back by the financial misinformation that's floating around the internet. The truth is that many of the most commonly cited reasons for avoiding homeownership are based on myths.

To help sort through fact and fiction with the help of real-world data, GOBankingRates conducted a survey of 500 renters and 500 homeowners over age 18 on May 10 to gather information about their general characteristics and future plans. The difference in responses between homeowners and renters regarding the housing market is enlightening. If you're looking to take the plunge into homeownership, don't let these common myths regarding the housing market hold you back.

Myth No. 1: You Need a 20% Down Payment

Putting 20% down on your house is a smart financial move for a number of reasons. For starters, you can avoid private mortgage insurance, or PMI, which can amount to hundreds of dollars per month. Additionally, with 20% down, you've already got significant equity in your house, making it less likely you'll find yourself underwater if the market takes a downturn. However, you absolutely do not need to put 20% down. In fact, the GOBankingRates survey found that nearly 50% of existing homeowners put down less than 20% when they bought their home, with a whopping 29% putting down 10% or less. Fannie Mae, for example, offers qualifying homeowners loans with down payments as little as 3%. Some banks, like Union Bank, still offer loans with as little as 0% down.

Myth No. 2: The Monthly Payments Are Too High

Buying a home is the biggest purchase most people will make in their entire lives. As such, it's natural to think that mortgage payments must be unaffordable. But the truth may be eye-opening for many renters. In many cases, mortgage payments are actually more affordable than rent. According to the respondents in the GOBankingRates survey, more than one-quarter of renters put 50% or more of their monthly salaries toward housing, compared to just 15.40% of homeowners. Additionally, 71.40% of homeowners pay 30% or less of their monthly income toward housing vs. 57.60% of current renters. Although it's true that homeowners generally earn higher incomes than renters, at least for the survey respondents, a mortgage actually seems more affordable than rent.

Myth No. 3: The Only Down Payment Assistance You Can Get Is From Your Parents

The biggest obstacle to homeownership for renters in the GOBankingRates survey is being able to afford a down payment. First-time homebuyers in particular often rely on financial assistance from parents or relatives to get enough cash for a sizable down payment. However, this is far from the only source of down payment assistance that's available. If you're a first-time homebuyer, there are a number of grants and loans that you may qualify for through federal, state and local programs. Some private and nonprofit companies also assist first-time homebuyers with their down payments. The U.S. Department of Housing and Urban Development, or HUD, is a good place to start, as are the VA, USDA and FHA. A good mortgage broker will be able to provide you with all the information you need about qualifying for down payment assistance.

Myth No. 4: Your Credit Is Too Bad

It's true that the higher your credit score, the more likely you are to be approved for a mortgage with a low interest rate. However, at least in the GOBankingRates survey, renters seem to have misplaced priorities when it comes to snagging a good mortgage. Although 21.40% of renters view their poor credit as the greatest barrier to owning a home, only 14.60% said they would pay off their credit card debt if given $50,000. Saving for a down payment is important, but if you use your savings to pay off your debt and improve your credit score, you could lock in a low interest rate for 30 years, which could save you a significant amount of money. Even if you have a bad credit score now, you might be surprised at how fast your credit score can jump if you attack your debt. And know this - even if you have a less-than-perfect credit score, you can still likely get a mortgage, you just won't get the best rates.