Buying a home—especially in tight housing markets like you’ll find in Southern New Jersey and Southeastern Pennsylvania—can be intimidating, whether you’re a first time or experienced homebuyer. And unfortunately, there are many myths and misconceptions that can convince qualified buyers that owning a home or purchasing a new home is out-of-reach.

From misinformation about down payment requirements to confusion surrounding affordable loan programs, would-be homebuyers frequently put off their search because they assume they won’t qualify for a loan. At 1st Colonial, we believe there are enough barriers to homeownership. That’s why we’re dedicating this post to dispelling some of these most common misconceptions, offering additional tips for how to navigate the many options available to homebuyers to make the process both accessible and affordable.

Myth 1: You need perfect credit to get a mortgage

Firstly, let’s start with the fact that perfect credit scores are exceedingly rare. In fact, only about 1% of Americans have them. Excellent credit scores—ranging from about 780-850—are more common. But even these aren’t required to get a mortgage.

Typically, lenders are looking at scores above 620—a “-good” score. But there are loan options out there, like FHA loans, where you may be able to qualify with a score as low as 500, as long as other qualifying criteria are met. Lastly, individuals with “bad” credit might be able to qualify with a cosigner or take some key steps to improve their credit score in the span of less than a year (like paying down debt). Regardless, don’t assume that because your credit isn’t excellent, homeownership isn’t a possibility. Instead, talk to a lender to explore your options and create a workable strategy.

Myth 2: You need a 20% down payment to buy a house.

According to the National Association of Realtors, the average down payment for first-time homebuyers is only 7%. That means while some are paying more, there are many paying even less. Though even conventional loans don’t usually require 20% down, there are many loan programs available that offer very low down payment options including FHA loans (as low as 3.5%), USDA loans (0%), and VA loans for veterans (0%).

So where does the 20% figure come from? Lenders prefer larger down payments because it lowers the risk to them. If you default on the home, even if the value of the home decreases a bit, there is plenty of wiggle room left for them to redeem their investment. In fact, if you put 20% down on a conventional loan, you won’t need to pay mortgage insurance, an additional monthly fee designed to reduce risk to lenders. But there’s no rule that requires it.

Myth 3: Getting pre-qualified means you have to get the loan

Pre-qualification is a great first step for finding the right loan for your home-buying needs. It can help you to shop around for loans, begin gathering important information and documents for your loan application, and set a budget for your home purchase. But because you report your financial information yourself and the lender won’t perform a hard credit check, it’s entirely possible to walk away from a pre-qualification without any consequences.

Pre-approvals, where your lender will verify your information and perform a credit inquiry, also do not require you to commit to any specific loan. In fact, you may want to seek out several pre-approvals at once—as all pre-approvals within a 45-day period will count as a single credit inquiry. However, because your credit is checked with pre-approvals (and the credit inquiry will appear on your credit report and could impact your credit score), it’s a good idea to reserve the pre-approval for when you are ready to put an offer in on a home.

Myth 4: You need to have the same job for years to be qualified for a home loan

Lenders want to see a stable history of income—this is true. But what lenders care more about than that you kept the same job for years is that you have a steady work history with at least two years of stable (or rising) income.

While changing jobs won’t necessarily hurt your chances, changing fields or the way you receive your pay might. A major change in your career path may present challenges—especially if it was accompanied by a gap in income or employment. Additionally, if you change jobs from one with regular weekly or biweekly pay to commission or contract-based pay, your lender may be hesitant to approve your loan if this change was within the past two years. But that doesn’t mean you’ll never get approved—even individuals who don’t have steady income month-to-month but can present several years’ worth of stable annual income can still qualify.

Myth 5: You can’t get a mortgage if you have student loan debt

If this were true, there would be even fewer people buying homes. In truth, 37% of first-time homebuyers have some student debt. Of course, lenders won’t approve individuals whose monthly debt payments are already overwhelming, but with the availability of income-driven repayment plans for some borrowers, you may be able to afford both a monthly mortgage payment and a student loan payment. If you are not yet on an income-driven repayment plan, talk to your lender to see if they make sense for your situation.

For a conventional loan, lenders generally prefer a debt-to-income ratio (DTI) of 36% or less. This means that no more than 36% of your pay should go to debt payments, including student loans, mortgage payments (including taxes and insurance), and other debts. Other loan programs, like FHA loans, may accept a DTI of 43%, offering even more flexibility. Lastly, if you accumulated your debt through certain professional programs, like obtaining a law degree or doctoral degree in medicine, your bank may be able to work with you to secure a home loan, despite high student loan balances.

Myth 6: Private mortgage insurance (PMI) is required forever

Got a conventional loan for your home with less than 20% down? You may think you’ll have to pay that PMI fee till your loan is paid off. Thankfully, that’s not always the case. Under federal law, as soon as you’ve paid off 20% (including your down payment), you can usually request for your mortgage provider to drop your PMI payment. Under certain circumstances, your lender is required to terminate your PMI once you’ve paid off 22%. If your home value has increased substantially, even if you haven’t paid off 20% of your purchase price, you may still be able to drop that PMI fee—though it will likely require your home to be reappraised.

FHA loans have slightly different rules for their mortgage insurance premiums (MIP). If you had a down payment of 10% or more, after 11 years this fee will be dropped. However, if you had a lower down payment, it will indeed last for the life of the mortgage. No matter which kind of mortgage you are considering, you can always ask your lender about the rules surrounding monthly fees, so you can make the most informed decision.

Myth 7: FHA loans are only for first-time or low-income homebuyers

FHA loans are for everyone. There are no income caps and no rules on who can use them. As long as you qualify for the loan based on income and credit, and the home is intended to be used as your primary residence, you can get an FHA loan.

Because of the low down payment requirements, and more flexible income and credit qualifications, FHA loans are popular among first-time homebuyers and lower- and middle-income buyers.

Why doesn’t everyone use an FHA loan, then? FHA loans may have more restrictions on the type of property, and some additional fees (like your mortgage insurance premium) are contingent on passing a possibly more rigorous inspection/appraisal—which might turn off some buyers or sellers. Despite these potential cons, the entryway to homeownership that FHA loans provide have made using one worth it for millions of homeowners.

Myth 8: Government-backed loans have higher interest rates

First, let’s clarify what a “government-backed” loan is. These loans are guaranteed or insured by a government program, whether it’s the USDA (US Department of Agriculture), VA (Department of Veteran’s Affairs), or FHA (Federal Housing Administration). Because they are backed by the federal government, borrowers can have a lower down payment.

Are their interest rates higher? Not exactly. Because interest rates are largely determined by market rates—and then by credit scores—you’re not going to see huge differences in interest rates between a loan guaranteed by a government agency and a private loan. In fact, oftentimes the rates for VA, USDA, and FHA loans are lower than conventional loans. However, because these loans do come with some additional fees, the annual percentage rate (APR), which includes other costs of the loan, may be higher than for conventional loans.

For example, VA loans generally have a funding fee, currently at 2.15% of the home purchase price (with a down payment of less than 5%), that will either be paid upfront or rolled into your monthly payments. Many choose to roll it into their home loan, since the difference each month won’t be substantial. Working with your lender you can compare out-of-pocket costs for different loans.

Myth 9: Only combat veterans are eligible for VA loans

VA loans are wonderful products. They offer great interest rates and more flexible financial requirements (for instance, you won’t need a down payment). But, like other VA benefits, they aren’t available to everyone.

Still, the rules on VA loans may be more flexible than you think. You do not have to have been in combat, though you—or your spouse—must have had some amount of “Active Duty” (usually only 90 or 181 days). Eligibility requirements vary depending on when you served, or if you’re currently serving. For a complete breakdown, visit their Eligibility For VA Home Loan Programs page.

Myth 10: USDA loans are only for farms

The full name of a USDA loan is “Single Family Housing Guaranteed Loan,” and while there is a rural component, and the USDA usually regulates agriculture, these home loans are for just that: houses.

Why is the USDA involved in home loans? As farms get bigger and bigger and require fewer people to manage them, populations in rural areas decrease. This leads to a further reduction in the number of people who are needed to support farming communities. The USDA sees this as an opportunity to match lower and middle-income individuals with affordable, rural homes that may otherwise sit vacant, helping to stabilize rural economies.

So, while you won’t necessarily use a USDA home loan to buy a farm (though you could, if there was a home on it!), your home must be located in a designated low-population area. This includes both properties out in the country, and many smaller suburban communities and towns. To see if homes in your area of PA or NJ qualify, you can use their eligibility map.

Get the Facts Straight on Mortgages with 1st Colonial

Mortgages and home buying are already complex enough without the added confusion of myths and bad information. At 1st Colonial, we're committed to cutting through the clutter, providing you with clear and accurate guidance. Whether it's your first home purchase and you're exploring different loan options like conventional loans, FHA loans, USDA loans, and VA loans, or you already own a home and are curious about refinancing or HELOCs, our team is here to demystify the process.

Don't let misinformation guide your home-buying journey. With 1st Colonial, you gain more than a lender—you gain a trusted ally in navigating the world of home ownership. Contact us today, and let's make your path to buying a home in the greater Philadelphia area and Southern New Jersey clearer and simpler.