Someone appears to be spreading lies about homeownership because it turns out potential buyers don’t know as much about mortgage loans as they think. Would-be homebuyers are getting scared off from jumping into real estate but their fears are straight up untrue.
There’s a big gap between what people THINK they need to qualify for a home loan and what is actually needed to get a mortgage. Case in point, a new survey from Wells Fargo shows that most people want to own a home but they’re widely misinformed.
Misconception #1: Two-thirds believe they need a very good credit score to buy a home, with 45% thinking a “good credit score” is over 780.
FACT: With multiple credit score models and investor guidelines, a score of over 780 is generally considered “excellent,” and over 660 is considered “good.” Plenty of homebuyers secure mortgage loans with good credit and options like FHA allow buyers with not-so-stellar credit to secure mortgage loans as well.
Misconception #2: Consumers also overestimate the down payment funds needed to qualify for a home loan, with 36% thinking a 20% down payment is always required.
FACT: Definitely not. In fact, according to recently polled Milllenials, 64.2% put down less than a 20% down payment with 36% putting down lass than 5%. Many professionals suggest putting 20% down if you have it however it’s definitely not necessary to securing a mortgage loan.
What does a real life buyer look like? Not perfect!
According to American Enterprise Institute’s International Center on Housing Risk’s First-Time Buyer Mortgage Risk Index (FBMRI), reality is far from perception when it comes to this perfect homeowner people think they need to live up to in order to buy a home. The report reveals:
- 70% of first-time buyer mortgages had a combined loan-to-value ratio of 95% or higher
- About 20% of first-time buyers taking out mortgages had a FICO score below 660
- 25% had total debt-to-income ratios above 43 percent
- The median first-time buyer with an agency mortgage made a down payment of only 3%, or $7,200 in dollar terms.
- The median FICO score for first-time buyers with agency mortgages was 705
- For first-time buyers with FHA-insured loans, the median FICO score was only 672
So stop being so hard on yourself, nobody’s perfect. And you definitely don’t need to be to afford a mortgage loan. Sit down and talk with a First Team agent to start figuring out your strategy to get into a new home – you might not be as far off as you think! Find an online at FirstTeam.com or reach out and we’ll match you with a specialist near you.
