MYTH #1
YOU NEED ‘PERFECT CREDIT’ TO BUY A HOME
A credit score is a three-digit number ranging from 300 to 850, with 850 as the highest score that a borrower can achieve. The higher the score, the more financially trustworthy a person is considered to be.”
Fannie Mae’s survey also revealed that 59% of Americans either don’t know or are misinformed about what FICO® credit score is necessary to qualify. Many Americans believe a ‘good’ 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. As you can see above, 52.7% of approved mortgages had a FICO® score between 600-749.
Over the last 12 months, the average FICO® Score for home purchases by Millennials was 723!
Don’t make the mistake of disqualifying yourself by thinking you need a 780 score.
MYTH #2
STUDENT LOANS ARE PREVENTING MILLENNIALS FROM BUYING A HOME
Millennials are on track to becoming the most educated generation in history. This means they are also the generation with the most student debt. Depending on the type of degree earned, as well as the prestige of the institution attended, there are some Millennials who graduate college with what equates to a mortgage payment every month. But that’s not the case for all.
Here are some statistics about the average college graduate & their student loans:
The age of the average college graduate is 22 years old.
The average student graduates college with $25,000 in student loan debt.
The terms of the average loan are 10 years, with a monthly loan payment of $280, and an interest rate of 6.8%.
Looking at these stats, the average college graduate has what amounts to a 10-year car payment after graduation.
Just like we saw earlier with the average age at first marriage, Millennials are delaying the social norms that many generations before them had set. According to NAR, Millennials who purchased a home last year delayed their home purchase by a median of 3 years, with 53% of those who delayed their purchase citing student loans as the debt that held them back the most.
Student loans have only delayed their ability to own their own home, not taken away the desire to do so.
Reasons Those with Student Loans Are Delaying Buying a Home:
85% - Can’t save for a down payment because of student debt
74% - Don’t feel financially secure enough because of existing student debt
52% - Can’t qualify for a mortgage due to debt-to-income ratio (DTI)
47% - Can’t afford their preferred house or neighborhood
18% - Don’t have the financial know-how to confidently navigate the housing market
Seems like there is some work to be done to educate those with Student Loan debt that they may be disqualifying themselves and may be able to buy now:
Can’t save for a down payment – What size down payment do they think they need? Check out Myth #3…
Can’t qualify for a mortgage due to debt-to-income ratio (DTI) – There is a big difference between your front-end DTI and your back-end DTI. The front-end DTI measures the amount of your monthly income that you will be spending on your mortgage payment. The back-end DTI takes into consideration your entire monthly expenses (or debts) in comparison to your monthly income.
According to Ellie Mae’s Origination Report, loans closed over the last year had an average front-end DTI of 25% and an average back-end DTI of 39% which is much higher than many believe they need.
% of All Buyers Millennials
Don’t have the financial know-how to confidently navigate the housing market?
This is where we come in! Your agent and mortgage professional should be your strategic partners throughout the home buying process. We are here to answer your questions and put your mind at ease about the big decisions that you will be making in order to make your dream of owning a home come true!
MYTH #3
‘YOU NEED A 20% DOWN PAYMENT TO BUY A HOME’
Gone are the days of 20% down or no loan, but recent surveys reveal that many Americans are not aware that programs exist to put down less.
Fannie Mae’s article, “What Consumers (Don’t) Know About Mortgage Qualification Criteria,” revealed that “only 5 to 16 percent of respondents know the correct ranges for key mortgage qualification criteria.”
The survey results revealed that consumers often overestimate the down payment funds needed to qualify for a home loan; 76% of respondents either don’t know (40%) or are misinformed (36%) about the
minimum down payment
required.
Many believe that they need at least 20% down to buy their dream home, but many programs actually let buyers put down as little as 3%.
Below are the results of a Digital Risk survey of Millennials who recently purchased homes.
Since Millennials make up the largest share of first-time buyers, it should come as no surprise that 97% of this generation financed their home purchase, compared to 86% of all buyers.
What may come as a surprise to many who have not yet purchased, however, is that 16% of those who financed their home put 0% down!
61% of Millennials who purchased a home in 2017 put down 10% or less!
According to data from the last 12 months of Ellie Mae’s Millennial Tracker, the average down payment for a Millennial was 10%.
Your dream home could be within your reach much sooner than you ever thought if you only need to save up 3-10% instead of the 20% that you may have thought you needed!