There seems to be a growing chasm between what the public believes to be needed and what is actually needed to qualify for a residential home loan. A recent survey by Ipsos reported that:
Two-thirds of those surveyed believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780.
Consumers overestimate the down payment funds needed to qualify for a home loan, with 36 percent thinking a 20 percent down payment is always required.
However, according to American Enterprise Institute’s International Center on Housing Risk’s May First-Time Buyer Mortgage Risk Index (FBMRI), reality is far from perception. The report reveals:
70% of first-time buyer mortgages had a combined loan-to-value ratio of 95% or higher
About 20% of first-time buyers taking out mortgages had a FICO score below 660
25% had total debt-to-income ratios above 43 percent
The median first-time buyer with an agency mortgage made a down payment of only 3 percent, or $7200 in dollar terms.
The median FICO score for first-time buyers with agency mortgages was 705
For first-time buyers with FHA-insured loans, the median FICO score was only 672
These numbers contradict the frequent claims that first-time buyers face difficulties in obtaining mortgages.
Stephen Oliner, co-director of AEI’s International Center on Housing Risk explained the reality of the situation.
“One hears all the time that first-time buyers have limited access to mortgage debt. But this isn’t true. Many first-time buyers with low FICO scores and little money down are buying homes every month.”