According to the Harris Poll survey*, homebuyers say these obstacles are preventing them from achieving their dream of homeownership:
- Lacking funds for a down payment – 34 percent
- Credit score needs improvement – 30 percent
Saving for a down payment and credit issues were among a homebuyer’s top three challenges. “Not having enough saved for a down payment and having a low income and credit score have been among the most frequently cited obstacles to homebuying among nonhomeowners over the past four years,” the survey states.
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Are you among the millions of Americans who are ready to become homeowners? Here are some possible solutions:
1. Down payment.
Save for your down payment if you’re able. It’s a common misconception that a 20 percent down payment is required to buy a house. But it can be helpful to put 20 percent down if you have it. In reality, 14 percent is the current median down payment, dropping to just 6 percent for a first-time homebuyer.
If you don’t meet your down payment savings goal, you still have options:
- Look for a no/low down payment loan. Your Academy Loan Officer can tell you more about which affordable mortgages you may qualify for, many of which require no or low money down. An FHA Loan, with a 3.5 percent down payment minimum and a recent reduction in mortgage insurance, and VA and USDA Loans, with no down payment requirement, are some examples.
- Consider down payment assistance (DPA). DPA programs are everywhere, and yet, a homebuyer is often surprised to hear they exist. Depending on the program, down payment assistance could be used to cover closing costs. DPA is also available to repeat buyers. You can ask your Academy Loan Officer about which DPA programs you may qualify for or read more here.
Along with your down payment, it’s important to factor in other upfront costs of homeownership. Closing costs usually range from 2 to 5 percent of your total loan amount. As homebuyer demand wanes, sellers may be more willing to agree to concessions, paying for some or all of your closing costs.
2. Credit score.
Your credit score reflects your level of financial risk. A higher score has the potential to help you qualify for a lower mortgage interest rate. A lower rate can decrease your monthly payment, saving you thousands of dollars over the life of your mortgage.
If your credit score needs some attention, there are a few steps you can take:
- Make payments on time. Simple as it seems, timely payments have a major impact. Payment history makes up 35 percent of your credit score.
- Pay off balances. No matter which method you use—with debt snowball being a popular pick—you can decrease your credit utilization ratio by chipping away at your balances.
- Don’t close old accounts. Once balances are paid off, leave accounts open and use them on occasion. Closing an old account will reduce your available credit, increasing your credit utilization ratio.
Boosting your credit score takes time. Familiarizing yourself with your free annual credit report can help you track your progress. While your Academy Loan Officer can’t provide credit counseling, they can give you a better idea of what credit score range to aim for if you want to qualify for an affordable mortgage.
It can also help to meet with your Academy Loan Officer to clear up any market confusion. In the survey, roughly 3 in 5 Americans voiced concerns about rising mortgage rates. Many called them “unprecedented.” Thankfully, this isn’t the case.
Though rates have risen from their record lows during the pandemic, these low rates were the exception, not the rule. Today’s higher mortgage rates are still below the historical average. At times like these, it can literally pay to lean on the guidance of your local Loan Officer. Your Academy Loan Officer can explain which rate-lowering strategies (like a Temporary Buydown) and low-cost loan programs might work for you.