The American dream of homeownership is as alive and real today as it has ever been, yet many home buyers are discouraged because they feel there are too many obstacles preventing them from owning their own home. Studies have shown that many of those obstacles 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.
Many renters mention 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
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 theNational Association of Realtors, the typical down payment for a first time buyer is 6%.
Many renters say 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
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)
Many renters mention that they carry too much debt that 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 under 25%
- 7% think you need under 39%
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 up to 45% based on credit score and other requirements.
Don’t let a lack of knowledge or misinformation keep your family from buying a home this year. Meet with a local real estate professional who can evaluate your ability to buy now!