Home-Buying Myths That Trip Up First-Time Buyers

The 20% figure persists because it's the threshold at which lenders typically waive private mortgage insurance (PMI) — an added monthly cost that protects the lender if you default. But it is not a universal requirement. FHA loans, backed by the Federal Housing Administration, accept down payments as low as 3.5% for borrowers with qualifying credit scores. Conventional loans backed by Fannie Mae and Freddie Mac offer 3% down options for eligible buyers. VA loans (for eligible veterans and service members) and USDA loans (for qualifying rural properties) may require no down payment. The trade-off is real: lower down payments often mean higher monthly costs and more interest paid over time. See what low down payment programs actually cost before deciding what's right for your situation.

Credit scores do matter — a higher score generally means a lower interest rate — but the bar is not as high as many first-timers assume. FHA-insured loans have historically been available to borrowers with scores of 580 or above (with a 3.5% down payment), and some conventional lenders work with scores in the mid-600s. What lenders evaluate is the full picture: your debt-to-income ratio, employment history, savings, and payment history all factor in. If your credit needs work, it may be worth spending several months reducing balances and correcting any errors on your credit report before applying. Use a readiness checklist to assess where you stand before starting your search.

Pre-approval is a formal process in which a lender reviews your income, debts, assets, and credit to issue a conditional commitment to lend up to a specific amount. Without it, you risk falling in love with a home outside your budget — or losing a competitive offer to a buyer who came prepared. In many markets, sellers won't consider offers that aren't accompanied by a pre-approval letter. Pre-approval is different from pre-qualification, which is a looser estimate based on self-reported information. Understanding the terminology matters; a plain-English glossary of real estate terms can help you navigate lender conversations with confidence.

Traditionally, the seller paid a combined commission split between the listing agent and the buyer's agent. However, real estate commission practices have been evolving, and buyers in some transactions may now be asked to agree to their agent's compensation directly. Before signing a buyer's agency agreement, ask how your agent is compensated, whether any portion could come from you, and what services are included. The home-buying process from offer to closing outlines each stage where costs can arise, so you're not caught off guard.

Owning a home builds equity over time, but it also comes with costs that renters avoid: property taxes, homeowner's insurance, HOA fees, maintenance, and repair expenses. If you plan to move within a few years, the transaction costs of buying and selling (typically 6–10% of the home's value combined) can outweigh any equity gains. Renting provides flexibility and predictable monthly costs. Neither renting nor buying is universally superior — the right choice depends on your finances, how long you plan to stay, and local price-to-rent ratios. You can also explore the research on home equity to get a clearer picture of how ownership actually builds wealth over time.