Yesterday, we discussed the belief Americans have in homeownership and their desire to partake in this piece of the American Dream. We also discussed some of the obstacles preventing them from attaining that goal. However, studies have shown that 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.
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
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%.
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
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 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%
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.
A lack of knowledge or misinformation may be keeping some families from buying a home even though they are actually qualified to purchase.
If you are one of the many renters debating a home purchase, let’s get together to discuss your options, before your rent goes up!
Call/text Jim at 605-858-0775 or click on the contact us button above for a free, no cost, no obligation home buyer consultation.
Are You Thinking About Buying a Home?
The process of buying a home can be overwhelming at times, but you don’t need to go through it alone.
You may be wondering if now is a good time to buy a home…or if interest rates are projected to rise or fall. The free eGuide below will answer many of your questions and likely bring up a few things you didn’t even know you should consider when buying a home.
Check it out, and feel free to get in touch if you have any questions.