Studies have shown that many of the obstacles to homeownership 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. Meet with a local mortgage professional who can evaluate your ability to buy now!
Published on Keeping Current Matters.