A recent study byFannie 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 of the most seemingly daunting challenges:
Down Payment
Perceptions
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 theFannie Maereport:
- 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
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. According to theNational Association of Realtors, the typical down payment for a first time buyer is 6%.
Credit Score
Perceptions
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 theFannie Maereport:
- 54% of all renters don't know what credit score is required
- 5% think you need at least a 740 credit score
The Reality
Many mortgages are granted to purchasers with a credit score of less than 700. According toEllie 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)
Perceptions
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 theFannie Maereport:
- 59% of all renters don't know what DTI is acceptable
- 25% think you need at under 25%
- 7% think you need under 39%
The Reality
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.
Bottom Line
Don't let a lack of knowledge or misinformation keep yourfamily from buying a home this year. Reach out to us and we will be happy toevaluate your ability to buy now!
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