Obstacles to Home-Ownership... Real or Imagined?
The belief Americans have in homeownership and their desire to partake
in this piece of the American Dream is well documented. And yet, there may be obstacles that seem to prevent Americans from attaining that goal. However, studies
have shown that many of the obstacles mentioned are perceived, not real.
A recent study by
Fannie Mae,
What Do Consumers Know About The Mortgage Qualification Criteria?,
revealed that many consumers are either unsure or misinformed regarding
the minimum requirements necessary to obtain a mortgage. Let’s break
down three such challenges.
Down Payment
Perceptions
Many renters have mentioned that the lack of an adequate down payment
is preventing them from moving forward with the purchase of a home.
According to the
Fannie Mae report:
- 40% of all renters don’t know what down payment is required
- 15% think you need at least 20% down
- An additional 4% think you need at least 10% down
The Reality
There are programs offered by Fannie Mae, Freddie Mac and FHA that
require as little as 3-3.5% down. VA and USDA loans offer 0% down
programs. According to the
National Association of Realtors, the typical down payment for a first time buyer is 6%.
Credit Score
Perceptions
Many renters have mentioned that the lack of an adequate credit score
is preventing them from moving forward with the purchase of a home.
According to the
Fannie Mae report:
- 54% of all renters don’t know what credit score is required
- 5% think you need at least a 740 credit score
The Reality
Many mortgages are granted to purchasers with a credit score of less than 700. According to
Ellie Mae, the average credit score on a closed FHA purchase is 687 and the average credit score on all loans is 722.
Back End Debt-to-Income Ratio (DTI)
Perceptions
Many renters have mentioned that they carry too much debt which is
preventing them from moving forward with the purchase of a home.
According to the
Fannie Mae report:
- 59% of all renters don’t know what DTI is acceptable
- 25% think you need at under 25%
- 7% think you need under 39%
The Reality
Lenders like to see a back-end ratio that does not exceed 36%. Fannie
Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly
income. The maximum can be exceeded up to 45% based on credit score and
other requirements.
Bottom Line
Don't let a lack of knowledge or misinformation keep your family from
buying a home this year. I'd be happy to meet with you to help to evaluate your ability to buy now!