Buying a home is an exciting process, but for many people it can also seem out of reach. While many renters would like to buy, there are several factors that may lead potential homebuyers to believe they may not be ready. These include credit score requirements, income and debt levels, and the common myth that a 20 percent down payment is needed. Here is some good news: Qualifying for a mortgage may not be so far out of reach.
While it is true that borrowers with stronger credit profiles — FICO scores of 720 and higher, low debt-to-income (DTI) ratios, and cash reserves — generally receive better mortgage terms, there are products in the market that can enable access to affordable, prudently underwritten mortgage financing.
Down payment is routinely cited by prospective homebuyers as the largest hurdle to homeownership, but low down payment mortgages are widely available in today’s market. These include conventional loans with private mortgage insurance (MI) and government-backed loans like those insured by the Federal Housing Administration (FHA).
Many borrowers incorrectly believe that they need a 20 percent down payment to buy a home, but with private MI a borrower can qualify for a conventional home loan with as little as 3 percent down. In addition to the competitive pricing of mortgages backed by private MI, private MI can be canceled when a borrower reaches 20 percent equity in his or her home. This added perk often makes private MI a more affordable option over other home loan programs — such as FHA-backed home loans — which require mortgage insurance premiums for the vast majority of borrowers for the entire term of the mortgage, which is often 15 or 30 years.
For more than 60 years, more than 30 million homeowners have used private MI to successfully buy homes and build the long-term wealth associated with home equity. In 2017 alone, private MI helped more than one million borrowers nationwide purchase or refinance a mortgage. According to a study by U.S. Mortgage Insurers, 56 percent of those borrowers who received purchase loans were first-time homebuyers and more than 40 percent had incomes below $75,000.
For decades, millions of homeowners and prospective homebuyers have relied on private MI to help them affordably and responsibly buy a home. Based on median home prices, it can take an average of 20 years to save for a 20 percent down payment. And with home prices dramatically on the rise, this wait time will only increase. Luckily, private MI can help you get into the home of your dreams sooner.
When making homebuying decisions, it is important to take a second look to make sure you are aware of all your options. Check out lowdownpaymentfacts.org to learn more.