Homeownership – The Truth Test
A recent Fannie Mae study, What Do Consumers Know About The Mortgage Qualification Criteria?, revealed many consumers are either unsure or misinformed about the minimum requirements necessary to obtain a mortgage. I’m going to break down three of these perceived challenges.
Many renters think the lack of an “adequate” down payment will prevent them from being able to purchase a home. According to the Fannie Mae report:
- 40% of all renters don’t know what down payment is required
- 15% think they need at least 20% down
- An additional 4% think they 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. Down payment assistance programs (DPA) and/or grants may be available as well.
Many renters believe the lack of an adequate credit score (FICO score) will prevent them from being able to qualify to buy a home. According to the Fannie Mae report:
- 54% of all renters don’t know what credit score is required
- 5% think they need at least a 740 credit score
Many mortgages are approved for buyers with a credit score lower 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 think they carry too much debt which will prevent them from being able to purchase a home. According to the Fannie Mae report:
- 59% of all renters don’t know what DTI is acceptable
- 25% think they need to be under 25% DTI
- 7% think they need to be under 39% DTI
Most 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. However, in some instances, DTI can exceed 50%.
Real Estate Bottom Line
It is unfortunate that misinformation may be keeping some families from buying a home, even though they are actually qualified to purchase. Let’s talk about your situation to determine if you can realize the dream of homeownership.