2 Myths Holding Back Home Buyers

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Urban Institute recently released a report entitled, “Barriers to Accessing Homeownership: Down Payment, Credit, and Affordability,” which revealed that,

“Consumers often think they need to put more money down to purchase a home than is actually required. In a 2017 survey, 68% of renters cited saving for a down payment as an obstacle to homeownership. Thirty-nine percent of renters believe that more than 20% is needed for a down payment and many renters are unaware of low–down payment programs.”

Myth #1: “I Need a 20% Down Payment”

Buyers often overestimate the down payment funds needed to qualify for a home loan. According to the same report:

“Most potential homebuyers are largely unaware that there are low-down payment and no-down payment assistance programs available at the local, state, and federal levels to help eligible borrowers secure an affordable down payment.”  

These numbers do not differ much between non-owners and homeowners. For example, “30% of homeowners and 39% of renters believe that you need more than 20 percent for a down payment.”

While many believe that they need at least 20% down to buy their dream homes, they do not realize that there are programs available which allow them to put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with programs that have emerged allowing less cash out of pocket.

Myth #2: “I Need a 780 FICO® Score or Higher to Buy”

Similar to the down payment, many either don’t know or are misinformed about what FICO® score is necessary to qualify.

Many Americans believe a ‘good’ credit score is 780 or higher.

To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.

2 Myths Holding Back Home Buyers | MyKCM

As you can see in the chart above, 51.7% of approved mortgages had a credit score of 600-749.

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach. Call Linda….I can find you a house! 407-925-7721 Cell or Text

A Low Credit Score Costs Home Buyers Big—Here’s How Much

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With skyrocketing home prices and rising mortgage rates, many home buyers are frantically looking for ways to cut down on costs wherever they can. But in one area, it makes sense to ramp up spending, experts say—paying off old bills, debts, and credit cards.

That’s because a very good credit score can save home buyers tens of thousands of dollars over the life of their mortgage, according to a recent report from online financial services marketplace LendingTree. That’s not chump change.

LendingTree estimates borrowers with very good credit scores of 740 to 799 can save $29,106 over those with a fair credit score of 580 to 669. The savings would be on the annual percentage rate of a 30-year fixed mortgage of $234,437, which is the average size of those loans, according to the report. Those savings are the price of a decent new car.

Aside from monthly costs, it’s a lot harder to get a loan with poor credit.

“When you’re taking out a mortgage, you’re asking a lender to invest in you for a very long time,” says Kali McFadden, senior research analyst at LendingTree.

“If you have a higher credit score, it means statistically you’re more likely to pay your bill on time,” she says. But “if you have a lower credit score, lenders are taking a bigger risk that you’re not going to pay your mortgage off or [you’ll go into] foreclosure.”

Credit score sweet spot
The ideal credit score is from 760 to 780 and up, McFadden says. Anything much below that and lenders are more likely to charge a higher interest rate or pile on more fees to compensate for the risk that the borrower may miss payments.

She recommends that would-be borrowers get their credit reports and resolve any outstanding issues before applying for a loan. They should also pay down or pay off old balances, not open or close any credit cards, and pay their bills on time.

That’s not to say every lender will offer rates to those with sterling credit, says Don Frommeyer, a mortgage loan originator at Marine Bank in Indianapolis. But some will and others will knock off various charges, such as filing and overnight fees.

In addition, many buyers will save substantially less over the life of their loan. That’s because after five or six years, many are likely to refinance their loan or move into a new home requiring a new mortgage.

Still, buyers should focus on boosting their credit score.

“You always save money with a higher credit score,” Frommeyer says. But “you can pay a fee for a lower credit score.”

Clare Trapasso is the senior news editor of realtor.com and an adjunct journalism professor at St. John’s University. She previously wrote for a Financial Times publication, the New York Daily News, and the Associated Press. She is also a licensed real estate agent with Charles Rutenberg. Follow @claretrap on Twitter, or contact her at clare.trapasso@realtor.com. Follow @claretrap

Can you Get A Mortgage?

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The widespread myth that perfect credit and large down payments are necessary to buy a home are holding many potential home buyers on the sidelines. According to Ellie Mae’s latest Origination Report, the average FICO score for all closed loans in May was 724, far lower than the 750 or 800 that many buyers believe to be true.

Below is a graph of the distribution of FICO scores of approved loans in May (the latest available data):

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Looking at the chart above, it becomes obvious that not only do you not need a 750+ credit score, but 54.9% of approved loans actually had a score between 600 and 749.

More and more experts are speaking up about the fact that if potential buyers realized they could be approved for a mortgage with a credit score at, or above, 600, the distribution in the chart above would shift further to the left.

Ellie Mae’s Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage:

“The high median credit score is due to many millennials believing they won’t qualify with the score they have – and are therefore waiting to apply for a mortgage until they have the score they think they need.” (emphasis added)

CoreLogic’s latest MarketPulse Report agrees that the median FICO score does not always tell the whole story:

“The observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity.”

It’s not just millennials who believe high credit scores and large down payments are needed. Many current homeowners are delaying moving on to a home that better fits their current needs due to a belief that they would not qualify for a mortgage today.

So what does this all mean?

Moe put it this way:

“Many potential home buyers are ‘disqualifying’ themselves. You don’t need a 750 FICO Score and a 20% down payment to buy.”

Bottom Line

If you are one of the many Americans who has always thought homeownership was out of your reach, let’s get together to start the process of getting you pre-qualified and see if you are able to buy now!