Mortgage rates recently rose to their highest level in over two decades, and spiraling home prices have made it much harder for people to buy homes. Still, many people may pursue the American dream of homeownership, despite the headwinds. However, another obstacle that may cause people to delay or not even make a purchase is the lack of education and the existing myths about the home-buying process.
A recent online survey paid for by Real Estate Witch found that many Americans are misinformed about home-buying. In fact, 72% of non-homeowners are convinced that a 20% down payment is required to buy a home, but this is not necessarily the case. While mortgage lenders generally recommend a down payment of 20%, many will accept a lower percentage.
Also, roughly 32% of people believe a credit score of at least 700 is needed to buy, yet buyers can qualify for a conventional loan with a score of 620.
For the survey, 1,000 people were questioned about their knowledge of the home-buying process. The survey was completed by 151 Black Americans.
Here are some current facts.
Per Freddie Mac, the average 30-year mortgage dropped to 7.18% on August 31, after reaching 7.23% on August 24, the highest point since June 2001. That percentage came as the Federal Reserve sustained efforts to cut inflation. Home prices purportedly surged for the fifth consecutive month as demand kept eclipsing supply.
With information about home-buying readily available, why are there still myths about the process?
According to Clever Real Estate data writer Sam Huisache, the myths surrounding today’s housing market are concerning for would-be home buyers due to their potential to create barriers to homeownership.
“Overall, these myths can lead to financial setbacks, missed opportunities, and heightened stress for those considering homeownership,” Huisache noted.
She pointed out that a realistic down payment for a home generally ranges from 5% to 20% of the home’s purchase price. And that the exact percentage can depend on various factors, including the lender’s requirements, your credit-worthiness, the type of mortgage you’re applying for, and your financial situation.
Huisache added that misconceptions about high down payment requirements could discourage individuals with limited savings, while an inaccurate understanding of costs might lead to surprises that become financial burdens. Home buyers should be aware that down payments below 20% will typically result in private mortgage insurance (PMI) added to their mortgage until they’ve reached 20% equity, she explained. PMI rates can be as high as 2% of the original mortgage amount.She recommended that potential home buyers consider looking into home-buyers programs that would assist them in qualifying for a mortgage with no PMI, such as a USDA loan. Another option is to pursue a mortgage with a lower PMI rate that could help reduce the monthly payment.
Huisache suggested Black home buyers use both realtors and mortgage lenders who specialize in assisting clients with first-time home-buyer programs and other initiatives designed to create more Black homeowners.
“Many first-time home buyer programs offer free real estate education courses so people can take their knowledge into their own hands,” she offered.
For example, last year Bank of America launched The Community Affordable Loan Solution. It is a program aimed to promote homeownership, including for Black communities in Charlotte, Dallas, Detroit, Los Angeles, and Miami. The program offers qualifying home buyers a bank-provided down payment and no closing costs.
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