Getting Home Financing Can Be Easier or Harder Than You Think
Recently, LendingTree, an online lender for mortgages and loans for home improvement, released a survey showing the misconceptions many first-time homebuyers have about the process of purchasing a home.
The survey included over 2,000 U.S. consumers looking to purchase their first house, and its results show how little personal finance education is taught, especially regarding buying a home. Here are the top four misconceptions the survey found:
1. A 20% Down Payment is Always Required for a Mortgage
Over 40% of those surveyed felt that it was an absolute requirement that the homebuyer put down at least 20% of the purchase price before a lender would approve their mortgage.
The truth: According to the National Association of Realtors, over 40% of home buyers put down less than 20% to buy their house. Instead, they focused on improving their credit scores before applying so that they had more leverage when it came time to find a lender that would give them better terms.
2. Private Mortgage Insurance (PMI) is Nearly Impossible To Get Rid Of
Sixty percent of those surveyed admitted they had no idea how to get rid of PMI and thought it was a near impossibility to stop paying for it.
The truth: PMI is a requirement for many lenders if the home buyer puts down less than 20% of the purchase price. However, the requirements vary from lender to lender for what stipulations PMI is a requirement vs. when it’s just “good to have.” PMI removal requests are most likely an option for most mortgages, so long as the mortgage is either refinanced or the mortgage balance reaches around 80% of the original purchase price.
3. Down Payments Can Be Paid For With a Personal Loan
With home prices surging lately, many younger buyers are struggling to find ways to afford homes. Nearly a quarter, 21%, of potential home buyers expected friends and family to chip in with the down payment. For those who don’t have loved ones to lean on, 30% expected to use a personal loan to help cover the down payment, closing costs, etc.
The truth: Personal loans are often not accepted by lenders as they’re seen as too risky (taking on the debt of a personal loan just to take on more debt caused by a mortgage throws up red flags for lenders). In addition, personal loans are explicitly prohibited to use as a down payment if the homebuyer expects to use Federal Housing Administration (FHA) mortgages or other government programs.
4. It Will Take Decades to Save Enough for a Down Payment
Down payments are the biggest reported stressor for those surveyed, particularly with how much they expect they’ll need to save and how much time it will take to reach that number. Getting financing on Maui has become tougher and tougher as interest rates and prices have gone up, but knowing that you can put less than 20% down is a huge help.
The truth: For those who did make a plan to save, the timeline wasn’t as long as they expected. Fifty-three percent of those who used savings for their down payments saved for around three years. For those living in the Northeast, where prices have begun to skyrocket, over 30% said it took them approximately five years to save for their entire down payment.
The Bottom Line
Learning the ins and outs of how mortgages are handled is essential before financing your first home purchase. The survey by LendingTree shows that the biggest misconceptions keep those who could become homeowners out of the game before they even try.
The most significant takeaway from this survey is that personal finance education needs to be at the forefront for the next generations of homeowners to put these misconceptions to rest. Working with a local realtor in your area is the easiest way to get connected with lenders. Many fear they will be wasting the time of the realtor or lender, but there is no need to worry! We are here to answer any questions, small or large, at any point in the process.
Get In Touch!
Evan Harlow is a Realtor on Maui who has the expertise, experience, and work ethic to help you achieve all of your real estate buying or selling goals. We promise exceptional service and support from the beginning of the process through closing and beyond.
Posted by Evan Harlow R(S) 82003 on