The lowdown on 6 myths about buying a home

August 11, 2023

Here, we dispel common myths in the homebuying process, plus three steps to take during this all-important purchase.

To rent or to buy? That question comes loaded with real estate rumors that could send potential homebuyers running for the rental hills.

To shine some light on homebuying, Robert Leitzel (NMLS 1301330), mortgage loan officer at U.S. Bank, helps debunk six myths to help prep for that very important purchase.

 

Homebuying myth #1: You need a 20 percent down payment

Not necessarily. It’s true that having a big down payment usually comes with advantages, such as no mortgage insurance and lower monthly payments. But depending on what type of loan you choose, you can buy a home with little or no down payment.

Veterans have access to zero-percent-down loans through the U.S. Department of Veterans Affairs. Federal Housing Administration (FHA) have down payments as low as 3.5 percent minimum if qualified. Conventional loans are often available for just 3 percent down based on certain qualifications.

Working with a loan officer early on can help you explore the best options for your budget.

 

Homebuying myth #2: You have to keep your mortgage for a number of years

Prepayment penalties are mostly a thing of the past (since the 2010 Dodd-Frank Act). Of course, you should always read your loan’s initial disclosures and all closing disclosures to be sure. But, most mortgages originated in the last five years do not have prepayment penalties.

 

Homebuying myth #3: Condos are cheaper to buy than individual homes

Condominiums and townhouses often carry a less expensive sale price and have perks. (Think: lower maintenance and little to no yard work.) However, watch out for hidden costs.

Condos typically come with Home Owner Association (HOA) dues and occasional assessment payments for building improvements. Many houses in developments also have HOAs.

Before you put in an offer, understand how much you’ll owe. Sometimes those fees are hundreds of dollars per month.

 

Homebuying myth #4: Always choose the lender who offers the lowest interest rate

Interest rates are definitely important. But all lenders can offer you a range of interest rates, depending partly on how much they charge in fees.

If financial matters seem complex, here’s a tip: when comparing interest rates, look at each lender’s Annual Percentage Rate (APR). APR is a calculation lenders give that combines the quoted interest rate and their fees. Looking at the APR is a much better comparison than just comparing the interest rate by itself. And it can help you make sure you’re getting the best overall loan.

 

Homebuying myth #5: It’s cheaper to rent than to own

This myth is accompanied by its sister myth: It’s cheaper to own than to rent.

It’s true that buying costs more money per month and exposes you to variable maintenance costs and property taxes. However, it also offers you an investment in real estate equity. And best of all – no landlord.

Rent, on the other hand, may increase over time and monthly payments don’t help invest in real estate equity. But you’re insulated from potential losses in housing market downturns and you could be free to move whenever you choose depending on your lease agreement

If your life is stable and you think you’ll be in place for awhile, buying may make a lot of sense. But if your life might change in the near future, renting could be the better financial choice.

 

Homebuying myth #6: Millennials are killing the real estate market

There are a few reasons for the current state of the housing market and Millennial homebuying patterns are just one factor. While its true they haven't been buying homes as fast as other generations, they are buying homes. In fact, today they represent the largest age group of homeowners. Part of the reason for their delay in purchasing homes is due to a shortage of starter homes in most urban markets.  Additionally, younger generations are saddled with more student debt, lower paying postgraduate jobs and a reluctance to invest in real estate. While critics blame millennials for craving a lifestyle rich in avocado toast and light on investing, that’s not exactly the case.

“While millennials may not be buying homes at the pace of the baby boomer generation at the same stage of life, millennials are buying homes. It’s just that we’re still feeling the aftershocks of the Great Recession,” Leitzel says.

 

Three steps to take before buying a house

1. Consult professionals early: A consultation with a loan officer is a great place to start for mortgage loan information months, or even years in advance. Loan officers can help you navigate all of the decisions that you will need to make. They often know strategies to help you realize your dream quicker than you might think. 

Loan officers can help you navigate all of the decisions that you will need to make. They often know strategies to help you realize your dream quicker than you might think. They’re a knowledgeable resource for you and meeting with them is free.

Another great way to kick start this journey is with a mortgage affordability calculator. It estimates how much house you can afford. All you do is enter your annual income and monthly expenses, then it calculates the mortgage amount that fits your budget.
 

2. Don’t be your own broker: Too many times people try to buy a house on their own, and it can become a nightmare. Work with a real estate agent and loan officer for the entire process.

Make sure you understand all the fees and multiple stages of the mortgage application process. They include pre-approval, loan application, processing, underwriting and closing. Professionals help you make the best deals and decisions.

If you want a fast, at-your-fingertips way to start a mortgage application, check out the U.S. Bank Loan Portal. Here, you can securely apply for a mortgage eligibility letter, submit loan documents and connect with a trusted mortgage loan officer.

3. Consider taking advantage of mortgage insurance: Mortgage insurance is known for its bad rap, but it’s not always the enemy. The benefit to you is that it lets you put down less than 20 percent, and that might be the best-case scenario for some. This type of insurance policy protects your lender against loss if you fail to pay your mortgage. The lender may require insurance depending on the type of loan you choose and the amount of your down payment.

Some loan products are available where the lender pays the mortgage insurance for you. At times, mortgage insurance stays with the loan for the life of the loan, And sometimes it will go away when the loan is paid down to a certain percentage of the original amount.

Taking out a mortgage that has mortgage insurance isn’t always a bad decision. Consider the loan estimate you receive carefully and ask your mortgage loan officer about alternatives.

 

Navigate the financial side of homebuying and mortgages with these helpful resources.

Related content

Checklist: 10 things to look for when touring a home

Retirement advice: How to retire happy

10 ways to increase your home’s curb appeal

6 tips for trust fund distribution to beneficiaries

4 reasons why estate planning is important

How to talk about money with your family

Estate planning documents: Living trusts vs. will vs. living will

Reviewing your beneficiaries: A 5-step guide

How to protect your digital assets in your estate plan

7 beneficiary designation mistakes to avoid

Financial steps to take after the death of a spouse

LGBTQ+ retirement planning: What you need to know

Retirement income planning: 4 steps to take

Good money habits: 6 common money mistakes to avoid

Is a Health Savings Account missing from your retirement plan?

Multiple accounts can make it easier to follow a monthly budget

Your 4-step guide to financial planning

How grandparents can contribute to college funds instead of buying gifts

A beginner's guide to investing

How does money influence your planning?

4 ways to free up your budget (and your life) with a smaller home

Webinar: Uncover the cost: Home renovation

LGBTQ+ financial planning tips

Do your investments match your financial goals?

The secret to successful service provider integration

Insource or outsource? 10 considerations

Housing market trends and relocation impact

Retirement savings by age

5 things to avoid that can devalue your home

What are conforming loan limits and why are they increasing

Key milestone ages as you near and start retirement

Should I itemize my taxes?

Avoiding the pitfalls of warehouse lending

8 steps to take before you buy a home

Preparing for retirement: 8 steps to take

Unexpected cost savings may be hiding in your payment strategy

Lost job finance tips: What to do when you lose your job

Money Moments: How to finance a home addition

Checklist: 6 to-dos for after a move

6 pandemic money habits to keep for the long term

Finance or operating lease? Deciphering the legalese of equipment finance

Working with an accountability partner can help you reach your goals

What to do with your tax refund or bonus

Why other lenders may be reaching out to your employees

What’s the difference between Fannie Mae and Freddie Mac?

High-cost housing and down payment options in relocation

A checklist for starting a mobility program review

How I did it: Bought a home without a 20 percent down payment

Crypto + Relo: Mobility industry impacts

Changes in credit reporting and what it means for homebuyers

For today's relocating home buyers, time and money are everything

Checklist: 10 questions to ask your home inspector

Closing on a house checklist for buyers

How to track expenses

How to build wealth at any age

Investment strategies by age

These small home improvement projects offer big returns on investment

Webinar: Mortgage basics: Finding the right home loan for you

5 financial goals for the new year

How to get started creating your business plan

The lowdown on 6 myths about buying a home

What documents do you need after a loved one dies?

Checklist: financial recovery after a natural disaster

Rebuilding finances after a natural disaster

How to plan and save for adoption and in vitro fertility treatment costs

Preparing for adoption and IVF

11 essential things to do before baby comes

Webinar: Uncover the cost: Starting a family

Tips for realtors to help clients get their homeownership goals back on track

3 tips for saving money when moving to a new home

5 ways to maximize your garage sale profits 

Pros and cons of a personal line credit

Tips for handling rising costs from an Operation HOPE Financial Wellbeing coach

How to manage money tips

For today's homebuyers, time and money are everything

Mindset Matters: How to practice mindful spending

Uncover the cost: International trip

Uncover the cost: Wedding

6 essential credit report terms to know

What is Medicare? Understanding your coverage options

Using 529 plans for K-12 tuition

Retirement plan options for the self-employed

How to open and invest in a 529 plan

How to manage your finances when you're self-employed

How much life insurance do I need?

Safeguarding the payment experience through contactless

COVID-19 safety recommendations: Are you ready to reopen?

Buying or leasing? Questions to ask before signing a contract

The costs of hiring a new employee

5 steps to take before transitioning your business

Make your business legit

How to establish your business credit score

Talent acquisition 101: Building a small business dream team

10 tips on how to run a successful family business

How to sell your business without emotions getting in the way

5 things to know before accepting a first job offer

How to save money while helping the environment

How to expand your business: Does a new location make sense?

Is raising backyard chickens a good idea financially?

7 steps to prepare for the high cost of child care

How to save for a wedding

How I did it: Turned my side hustle into a full-time job

5 things to consider when deciding to take an unplanned trip

How to talk to your lender about debt

Stay committed to your goals by creating positive habits

5 tips for creating (and sticking to) a holiday budget

How to test new business ideas

How can I help my student manage money?

Bank from home with these digital features

7 steps to keep your personal and business finances separate

3 types of insurance you shouldn’t ignore

Is your employer long term disability insurance enough?

8 steps to choosing a health insurance plan

7 things to know about long-term care insurance

How I did it: Switched career paths by taking an unexpected pivot

5 unexpected retirement expenses

Year-end financial checklist

Key components of a financial plan

Comparing term vs. permanent life insurance

Achieving their dreams through a pre-apprenticeship construction program

4 steps to finding a charity to support

How to winterize your vehicle

Don’t underestimate the importance of balancing your checking account

What you need to know as the executor of an estate

How to build a content team

Can fantasy football make you a better investor?

Year end tax planning tips

Credit: Do you understand it?

What types of credit scores qualify for a mortgage?

Test your loan savvy

Webinar: Mortgage basics: What’s the difference between interest rate and annual percentage rate?

How do I prequalify for a mortgage?

Can you take advantage of the dead equity in your home?

Webinar: Mortgage basics: How much house can you afford?

Home equity: Small ways to improve the value of your home

Is a home equity line of credit (HELOC) right for you?

Webinar: Mortgage basics: 3 Key steps in the homebuying process

Webinar: Mortgage basics: Buying or renting – What’s right for you?

How to use your home equity to finance home improvements

Webinar: Mortgage basics: What is refinancing, and is it right for you?

Should you get a home equity loan or a home equity line of credit?

6 questions to ask before buying a new home

What is refinancing a mortgage?

What is an escrow account? Do I have one?

Quiz: How prepared are you to buy a home?

10 questions to ask when hiring a contractor

What to know when buying a home with your significant other

Webinar: Mortgage basics: How does your credit score impact the homebuying experience?

What is a home equity line of credit (HELOC) and what can it be used for?

Dear Money Mentor: When should I refinance a mortgage?

Building a dream home that fits your life

Are professional movers worth the cost?

First-time homebuyer’s guide to getting a mortgage

Beyond the mortgage: Other costs for homeowners

How I did it: Bought my dream home using equity

Get more home for your money with these tips

Saving for a down payment: Where should I keep my money?

How I did it: Built living spaces to support my family

Community activist achieves dream of homeownership

Bringing economic opportunity to underserved communities one home at a time

Managing the impacts of appraisal gaps in a hot housing market

Is it the right time to refinance your mortgage?

Spring cleaning checklist for your home: 5 budget-boosting tasks

Overcoming high interest rates: Getting your homeownership goals back on track

Is it cheaper to build or buy a house

Home buying myths: Realities of owning a home

House Hacks: How buying an investment property worked as my first home

Should you buy a house that’s still under construction?

10 uses for a home equity loan

Know your debt-to-income ratio

Your guide to breaking the rental cycle

Travel for less: Smart (not cheap) ways to spend less on your next trip

Tips for working in the gig economy

Which is better: Combining bank accounts before marriage — or after?

Tips to overcome three common savings hurdles

Money Moments: 8 dos and don’ts for saving money in your 30s

Save time and money with automatic bill pay

Money Moments: 3 smart financial strategies when caring for aging parents

Helpful tips for safe and smart charitable giving

Growing your savings by going on a ‘money hunt’

Is it time to get a shared bank account with your partner?

Friction: How it can help achieve money goals

It's possible: 7 tips for breaking the spending cycle

What to consider before taking out a student loan

Here’s how to create a budget for yourself

Are savings bonds still a thing?

3 awkward situations Zelle can help avoid

Allowance basics for parents and kids

9 simple ways to save

Do you and your fiancé have compatible financial goals?

What military service taught me about money management

From LLC to S-corp: Choosing a small business entity

Is online banking safe?

Recognize. React. Report. Caregivers can help protect against financial exploitation

How I did it: Paid off student loans

The A to Z’s of college loan terms

Costs to consider when starting a business

Questions to ask before buying a car

Webinar: Uncover the cost: Building a home

Webinar: Mortgage basics: Prequalification or pre-approval – What do I need?

Adulting 101: How to make a budget plan

You can take these 18 budgeting tips straight to the bank

How I did it: Learned to budget as a single mom

How you can take advantage of low mortgage rates

Multigenerational household financial planning strategies

Buying a home Q&A: What made three homeowners fall in love with their new home

Working after retirement: Factors to consider

Personal loans first-timer's guide: 7 questions to ask

Dear Money Mentor: How do I set and track financial goals?

Understanding guardianship and power of attorney in banking

What financial advice would you give your younger self?

How to stop living paycheck to paycheck post-pay increase

What you need to know about renting

What’s in your emergency fund?

Certificates of deposit: How they work to grow your money

Car shopping: Buying versus leasing your next vehicle

What you should know about buying a car

Take the stress out of buying your teen a car

Practical money skills and financial tips for college students

Tips for navigating a medical hardship when you’re unable to work

Money management guide to financial independence

Money Moments: How to manage your finances after a divorce

Personal finance for teens can empower your child

5 reasons why couples may have separate bank accounts

U.S. Bank asks: Transitioning out of college life? What’s next?

Co-signing 101: Applying for a loan with co-borrower

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

How to use debt to build wealth

How to build credit as a student

30-day adulting challenge: Financial wellness tasks to complete in a month

Money Moments: Tips for selling your home

How I did it: My house remodel

Does your savings plan match your lifestyle?

Resources for managing financial matters after an unexpected death

Webinar: Uncover the cost: College diploma

Crypto + Homebuying: Impacts on the real estate market

Your quick guide to loans and obtaining credit

Military homeownership: Your guide to resources, financing and more

U.S. Bank asks: Do you know your finances?

Webinar: Bank Notes: College cost comparison

Do I need a financial advisor?

4 questions to ask before you buy an investment property

Healthcare costs in retirement: Are you prepared?

Good debt vs. bad debt: Know the difference

Preparing for homeownership: A guide for LGBTQ+ homebuyers

Parent checklist: Preparing for college

Annual insurance review checklist

7 financial questions to consider when changing jobs

Unexpected cost savings may be hiding in your payment strategy

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.