Veterans United Home Loans is a registered DBA of Mortgage Research Center, LLC, an affiliate of Three Creeks Media.
"Many prospective buyers are setting their expectations higher than they need to, which can delay or even derail their homebuying journey," said Chris Birk, vice president of mortgage insight at Veterans United, in a statement this week. "The reality is that loan programs are often more flexible than people realize, especially when it comes to credit scores, down payments, and interest rates. Understanding what's actually possible can help buyers move forward with confidence."
Harmful Mortgage Myths
Birk was commenting on a May 4 report from Veterans United that uncovered widely believed myths about mortgages that are simply untrue. Such myths among survey respondents, all of which are misunderstandings, include:
- 34% of respondents wrongly believe mortgage applicants need a credit score of 700 or higher
- 57% think that at least a 650 score is necessary
- 31% assume it's impossible to buy a home without a down payment
- 46% think they can't get a conventional loan with a down payment below 5% of the purchase price
- 15% believe the minimum down payment on any mortgage is 20%
- 63% reckon mortgage rates are higher now than they've ever been
- 56% claimed to be "very or extremely knowledgeable about the homebuying process"
All the respondents were people planning to buy a home within the next three years.
Mortgage Myths Exploded
Let's run through that list of myths again, correcting misunderstandings. This time, all the following are true:
- The minimum credit score for an FHA loan is 580 with a 3.5% down payment, or 500 with a 10% down payment
- There's no minimum score for a conventional loan, although many lenders do require 620
- Both USDA loans and VA loans are available with zero down payment. Not everyone qualifies for those, but many millions do
- The minimum down payment for a conventional loan branded Fannie Mae or Freddie Mac is 3%
- A 20% down payment avoids the need to pay private mortgage insurance (PMI) premiums, but most prefer to pay the PMI to get on the housing ladder sooner
- Check out Freddie Mac's chart of mortgage rates going back to the early 1970s (select the All button). Historically, today's mortgage rates aren't particularly high. They were higher this time last year. And, in October 1982, they peaked at 18.53%, roughly three times their current level.
- No doubt some respondents really were "very or extremely knowledgeable about the homebuying process." But a lot more weren't
Filling the Gaps in Knowledge
There's no reason why prospective homebuyers should be embarrassed about gaps in their knowledge. The home-buying process isn't a matter of common sense, and it's rarely, if ever, taught in schools.
Of course, websites like this one exist to fill in knowledge gaps and are easy to search for particular topics. But readers may not know which topics they need help with.
Homebuyer education programs exist across the country to prepare newbies. And, since the pandemic, many are available online.
Some charge fairly modest fees, but some are free. For example, the online Fannie Mae HomeView® course is open to everyone and charges nothing.
Many mortgage and down payment assistance programs mandate completion of one of these courses, so it's possible readers may have to undertake (and possibly pay for) two if they do one now.
But courses are typically highly affordable. And isn't it better to know too much than too little?
