Homeownership – The Truth Test

home-ownership-obstacles
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.

Down Payment

Perception

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

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. Down payment assistance programs (DPA) and/or grants may be available as well.

Credit Score

Perception

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

The Reality

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)

Perception

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

The Reality

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.

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