The Urban Institute recently published a report discussing the obstacles to accessing homeownership. 80% of consumers either are unaware of how much lenders require for a down payment or believe all lenders require a down payment of over 5%. My job is to educate potential homebuyers with the realities of a mortgage and obtaining a loan.
The first major myth is that homebuyers absolutely need a 20% down payment.
Many homebuyers can overestimate the down payment funds needed to qualify for a home loan. According to the Urban Institute report, “consumers are often unaware of the option to take out low down payment mortgages. Only 19% of consumers believe lenders would make loans with a down payment of 5% or less, while 50% believe lenders require 20% down payment, and 30% believe lenders expect a 20% down payment.”
And existing homeowners think that they need at least 20% down to buy their dream home not realizing that there are so many programs out there available to them. Whether it’s a new home after you’ve rented for some time or you’re considering moving up to a larger home, there are many programs that allow a 3% down, allowing many people to enter the housing market sooner than they ever expected.
Related: 10 Commandments for Financing a Home
The second myth is that they need a FICO score of at least 780 or higher in order to buy.
Yes, having a credit score of 780 or higher is a good to excellent score, but it’s not required to get a home loan. On average, nearly half of approved mortgages were for those that had a credit score between 600 and 750.
With less than 600, however, according to the FICO® score distribution, less than .6% of borrowers had credit scores between 500 and 600.
It’s also important to note the long-term interest rates are heading up throughout 2018 but short-term rates will actually outpace them. The modest pickup in inflation will keep these long-term rates from rising as much a short ones.
The federal government will continue to raise short rates because of falling employment I want to stay ahead of any inflation that rising wages can generate.
Read More: How To Increase Your Credit Score
This is going to be a great year but, it can only be a new start for you if you find out how much home you can afford and the realization that you can actually afford a mortgage in general. Give me a call, I’d love to discuss rates, programs, and options that could be available to you. It is possible to get approved for a home loan for less than 20% down and a less-than-perfect credit score.