We recently read a survey of young Americans who want to buy a home but think they can’t. Their reasons for feeling this way are a bit shocking.
We assumed the number one reason they feel they can’t buy a home is because of the current, overheated market with prices rising fast. That isn’t the case however.
So, today we unwrap the misconceptions and challenge them.
Misconception Number One: You Need At Least 10% For A Down Payment
I found this surprising because the myth I hear most often is down payments must be 20%. Where this group of young homebuyers came up with 10% is anyone’s guess.
The truth?
Down payment requirements range from zero to… the sky-is-the-limit. The Veterans Administration-backed home loan and the USDA Rural Development program’s mortgage don’t require a down payment. For the latter, the caveat is “for those who qualify.”
So if you want to buy a home, keep reading.
I’ll dive into the down payment myth first and then tackle another that you may find surprising.
The truth about down payments
Yes, you’ll find mortgages on the market that require 10% and even 20% down. You’ll also find loans that allow zero percent down, such as some USDA products and the VA mortgage.
Then, there’s the loan backed by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration, or FHA. Qualified borrowers wanting to buy a home may pay as little as 3.5%.
Learn more about FHA-backed loans at themortgagereports.com, nerdwallet.com or chase.com.
And, don’t overlook government programs designed to help lower-income Americans buy a home. Themortgagereports.com compiled a state-by-state list of assistance programs.
Misconception 2: Current Mortgage Rates Are Too High
Currently, mortgage rates have hit a 22-month high, according to Brett Holzhauer at cnbc.com. Keep in mind, however, that we’re coming off of record low mortgage rates.
“… the average 30-year mortgage rate hit a low of 2.65% in Jan. 2021,” Holzhauer reminds us. “Since then, the average mortgage rate has climbed to 3.98% as of March, 2022.
Yet younger homebuyers assume they’re too high and many are prepared to wait until they go down again. This may not happen, if the Fed has its way, hinting at three rate hikes this year. But remember, mortgage rates are not directly ties to the Fed. I prefer to watch the 10-year Treasure Note. So, if you want to buy a home, and prepare the right way, I suggest you watch this metric, too.
Now, for those with poor credit, yes, your mortgage rate will be higher than you may expect. The mortgage rate you will be offered is “… determined for the most part on two factors: credit score and equity/down payment,” notes Holzhauer.
If either or both of those factors slow you down to buy a home, do yourself a favor and get to work fixing your credit problems and saving some money.
Pay special attention to your credit card debt. Pay it off until you’ve hit 30% of your credit limits, don’t take on new credit or close any accounts that appear on your credit reports and use credit as little as possible.
If are serious and preparing to buy a home yet may put you dreams on hold, check out these common-sense steps to getting ready to buy in the future, at forbes.com.
Never hold yourself back from exhausting all your options. Your friends are buying homes, your neighbor is about to buy a home – their 2nd. You can do it, too. Let me help you get on the right path…
