August 31st 2023.
Recently, mortgage rates and home prices have been on the rise, making it much harder for people to buy homes. Despite the headwinds, many still pursue the American dream of homeownership. Yet, another obstacle that may prevent people from making a purchase is the lack of education and existing myths about the home-buying process.
A recent online survey by Real Estate Witch revealed that many Americans are misinformed when it comes to buying a home. For example, 72% of non-homeowners believe that a 20% down payment is needed to buy a house, yet many mortgage lenders accept lower percentages. Additionally, 32% of people think that a credit score of at least 700 is needed to buy, while conventional loans can be secured with a score of 620.
To give perspective to the current housing market, the average 30-year mortgage dropped to 7.18% on August 31, thanks to the Federal Reserve’s efforts to reduce inflation. Home prices kept rising for the fifth consecutive month due to the overwhelming demand for residences.
So, why are there still myths about the home-buying process? According to Clever Real Estate data writer Sam Huisache, these myths can create barriers to homeownership and lead to financial setbacks, missed opportunities, and heightened stress for those considering buying a home. She pointed out that a realistic down payment for a home generally ranges from 5% to 20%, depending on the lender’s requirements, creditworthiness, type of mortgage, and financial situation.
Huisache also explained that a down payment below 20% will typically result in private mortgage insurance added to the mortgage until they reach 20% equity. PMI rates can be as high as 2% of the original mortgage amount. To avoid PMI, Huisache suggested potential home buyers consider home-buyer programs, such as a USDA loan. And Black home buyers should seek out realtors and mortgage lenders who specialize in assisting them with first-time home-buyer programs and other initiatives specifically designed to create more Black homeowners.
Ultimately, the survey shows that we must continue to educate people about the home-buying process. Bank of America is already taking steps with their Community Affordable Loan Solution program, which offers home buyers a bank-provided down payment and no closing costs in select cities. With more initiatives like these, myths about home-buying can become a thing of the past.
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