While 89% of millennials want to own a home, a shocking 67% of them believe they will never be able to afford one. Unfortunately, this is often because of the many myths that surround homeownership. Today, we are breaking down 3 of the biggest myths surrounding homeownership, why they are wrong, and how you can become a homeowner faster.
Myth #1: You need to have a 20% down payment to get a mortgage
That’s the ideal value for most down payments, but not the golden rule. Many first-time homebuyers can acquire a mortgage with as little as 3.5% down — or even 0% through special loan programs. However, the more you put down, the lower your monthly payment will be, and the less you will pay in interest on your mortgage, so putting down as little as possible could inflate how much you pay for housing every month. Overall, the average down payment for homebuyers in the United States is about 6% as of August 2021, which is still far below the 20% that many believe you need
Myth #2: You can't get a mortgage if you have student loans
If you’re one of the 42.9 million Americans with student debt, you can still own a home! Student loans are treated like any other debt for home buying and your monthly payment is added in as part of your debt-to-income ratio — a key number lenders use to see if you qualify for a mortgage. However, student loans have one major difference from other loans when it comes to your debt-to-income ratio: if your student loans are in deferment or forbearance (basically, you don’t have to make any payments on them right now so you don’t have a monthly payment), lenders will take 0.5% to 1% of how much you owe on your student loans and use that as your monthly payment instead. If you have large student loans, but your monthly payment is manageable, you typically can still qualify for a mortgage.
Myth #3: You need a 780 credit score
Good credit will give you more options on the types of mortgages you can receive and will typically get you a much lower interest rate on your mortgage, but you don’t have to put your life on hold because you have a credit score under 780. Many loan programs, like FHA loans, allow you to borrow with a credit score as low as 580. Fun fact, lenders typically stop caring about your credit score after it hits 740, so anything above that typically doesn’t help your mortgage at all.
While these are the three most common myths around getting to homeownership, there are many more out there. Getting through the sea of information around home buying is stressful, which is why we built Quo to guide you through it. Quo connects to all of your finances and shows you exactly what you need to do to become homeownership ready — from fixing issues in your credit report to paying off debts and saving money. Quo gets you a personalized homeownership plan, so you can stop asking your dad what he put down on his house decades ago and get the most up-to-date and accurate plan for you. Learn how close you are to owning a home.