Homeownership is considered a challenging stepping stone on the path to the American Dream—a fact that is especially true for many millennial and minority consumers. The fifth annual America at Home survey by non-profit NeighborWorks America found that down payment confusion, credit score misinformation and student loan debt are the major obstacles standing in the way.
Many consumers aren’t aware of the various financing options available to homebuyers, or of the varying down payment requirements. On average, millennials believe the minimum down payment requirement is 21 percent, according to the survey; in reality, down payments can be as low as zero percent for VA loans, or can range from 3 to 5 percent for some Fannie Mae and Freddie Mac loans. The Federal Housing Administration (FHA) also provides loans with low down payment options.
There are various loans that cater to first-time buyers or those who don’t have a large sum of money to put down. The survey reports that 70 percent of adults don’t feel they have enough in savings for a down payment, but this may be attributed to a lack of mortgage industry knowledge. Seventy-three percent of people surveyed and 62 percent of millennial participants were unaware of down payment assistance programs for middle-income buyers.
Consumers should reach out to their local bank to find out if any loan options work for them. Making a few lifestyle changes is also a quick way to amass down payment funds.
The power of credit in the real estate industry is widely misunderstood among consumers. While the mortgage-qualifying rate is around the 620 range, homebuyers believe it is much higher. Twenty-one percent of non-white survey participants believe credit is their biggest home-buying challenge. The median FICO score is 700, and thus many consumers may be incorrectly assuming that their credit score is too low.
The only way to know for sure is to find out what their credit score is. Plenty of credit card companies provide free credit report monitoring, or consumers can look up their score on one of the three top credit reporting agencies: TransUnion, Experian or Equifax. If consumers’ credit is, in fact, too low for lenders, they can improve their score in a variety of ways.
Student Loan Debt
High monthly payments incurred from student loan debt are largely to blame for the millennial generation’s delayed entrance into home-buying. The survey reports that 26 percent of American adults and half of all millennials have student loan debt.
Not only is this debt making saving for a down payment impossible, but it can prevent buyers from being able to afford monthly mortgage payments—or, if they can afford them, living paycheck to paycheck can become a startling reality. NeighborWorks America reports that half of millennials are constantly worried about their student loans. While some programs can help deal with the debt, consumers may not be aware that the assistance exists. Seventy percent of the surveyed millennials did not know about these organizations.
Source: NeighborWorks America
Liz Dominguez is RISMedia’s associate content editor. Email her you real estate news ideas at email@example.com.
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