Mortgage misconceptions are pretty commonplace as loan options and mortgage qualifications change, but a new study performed by Fannie Mae found that a vast majority of U.S. consumers, especially those who plan to buy a home in the next five years, don’t know or are misinformed on what it takes to buy a home.
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Minimum Required Down Payment for a Mortgage
Among survey respondents, 40% said they didn’t know what was required for a down payment. Among the respondents who were currently renting but planning to buy within five years, 30% said they didn’t know down payment minimums.
The mean response of respondents who said they knew the minimum down payment for a mortgage was 12 percent, which is much higher than minimums on several loan options, including:
Even conventional financing, which isn’t insured or guaranteed by the federal government, allows qualified homebuyers to purchase a home with as little as 3 percent down.
For more down payment and qualification information on the loan programs mentioned above, click here.
Minimum Credit Score Required to Buy a Home
Knowledge of credit score requirements and mortgage qualification was even less. Of all consumers surveyed, over half said they didn’t know the minimum credit score required for a mortgage. Of renters who said they plan to buy within five years, 45 percent said they weren’t aware of what their credit score needed to be.
The mean answer of respondents who said they did know the credit score requirement was 652, which is significantly higher than the minimum of 620 required by all mortgage loans delivered to Fannie Mae.
Individual establishments may have higher credit score requirements depending on the loan type and program. Currently, Compass Mortgage has the ability to finance FHA loans to eligible borrowers with credit scores as low as 560.
For more information about credit score requirements and homebuying, click here.
But One Thing Consumers Agree On (and Get Right)…
Overall, 33 percent of respondents said the most influential source of information for mortgage advice was their lender. Meeting with a mortgage banker should always be your first step in the homebuying process, whether you plan to buy now or somewhere in the near future.
A home is likely the biggest purchase you’ll make in your lifetime. Meeting with a lender will allow you to discuss your mortgage options, home affordability, where your credit stands and what you need to do to improve or maintain your financial standpoint to become mortgage-ready. Don't dismiss yourself based on what you think you need to qualify for a mortgage; you may be wrong.
Currently, mortgage rates are near historical lows and the cost of rent is soaring. If you’re interested in finding out more about what it takes to buy a home, download our free Mortgage 101 Handbook.