The Aspiring Home Buyers Profile from the National Association of Realtors (NAR) found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in today’s housing market. The results of the survey show that non-homeowners cite the main reason for not currently owning a home, as not being able to afford one.
This brings me to two major misconceptions that I want to address today — down payments and FICO scores.
NAR’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 39% of non-homeowners say they believe they need more than 20% for a down payment on a home purchase. In actuality, there are many loans written with a down payment of 3% or less.
Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.
For example, if you’re planning to buy a primary residence in Green Valley or Sahuarita, you may qualify for a USDA loan, which offers great interest rates and $0 down payment options. This is a great option for seniors on a fixed income or who want to limit their out-of-pocket expense.
And if you’re a veteran, be sure to investigate a $0 down payment VA backed loan.
An Ipson survey revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO® scores of approved conventional and FHA mortgages are much lower.
The average conventional loan closed in August had a credit score of 752, while FHA mortgages closed with a score of 683. The average across all loans closed in August was 724. The chart shows the distribution of FICO® Scores for all loans approved in August.
For USDA loans, borrowers need a minimum credit score of 640, and most VA lenders will look for a credit score of 620 or better.
Bottom Line: If you’re a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, let’s sit down to help you understand your true options.