Most would agree – home ownership is part of the American Dream. According to Bankrate, a recent “Consumer Mortgage Understanding Study” conducted by Fannie Mae showed that 91% of more than 3,600 respondents prefer owning a home to renting, but are still largely unaware when it comes to home-buying basics.
Securing a mortgage is often part of the homebuying process. However, many Americans are not as familiar with mortgages as they should be. More than 40% of the survey respondents revealed they do not know the minimum upfront cost to purchase a house. Only 17% of respondents knew the correct amount for a down payment, which is between 1% and 5%. Most overestimated the actual amount, including 20% of respondents that believed the correct down payment to be between 6% and 10%.
FICO scores are based on credit reports and important when trying to qualify for a home loan, but the survey showed 43% of Americans did not know their number and more than half (53%) of survey respondents did not know the minimum credit score required for a mortgage. FICO score requirements vary by loan type and lender, but scores as low as 580 are often acceptable.
The mortgage process can feel complicated to consumers, mainly because the transaction is done so infrequently. The lack of financial education among Americans is a major contributor to misinformation around mortgages. Staying informed about your own financial credentials is just as important as having a general knowledge of mortgages.
Credit unions exist to improve their members’ lives and can be a great partner to help you understand your finances and achieve your dreams, including home ownership. Most Ohioans are eligible to join and enjoy the benefits.
Tips for navigating the mortgage process…
Understanding the mortgage process is no easy feat, but it’s necessary before becoming a homeowner. Check out these and other practical tips for navigating the process from credit.com in a simple step-by-step format.
Do your homework – Check out reputable lenders in your area and get pre-qualified so you know the price range in which you should be shopping.
Know the numbers – Research current mortgage rates to help determine what you can afford. Don’t forget to calculate fees, including homeowner’s insurance and local property taxes, in addition to a monthly mortgage payment.
Know and understand your credit score – When applying for a loan, lenders look at your FICO scores to help determine your credit risk and the interest rate charge on your home loan. You have three, one from each of the major credit bureaus — Equifax, Transunion, and Experian. Any changes to your credit scores or reports could potentially derail the loan process.
Get to know your local credit union – There are many potential advantages to choosing a credit union as your lender, including a better mortgage rate, but none are as important as having a personal relationship with your financial institution.
Get pre-approved – While pre-qualification gives you a sense of financial readiness and can be done over the phone or online, pre-approval takes it to the next level by requiring proof of your financial history and stability. You’ll be asked to provide a variety of documents to verify your assets and debt, income, employment, and credit standing. You don’t need to be pre-approved to make an offer on a house, but your extra level of commitment and preparedness might give you an edge with the seller.
Lock in your rate and terms – Once you’re pre-approved, it’s time to lock in the terms and rate of your mortgage loan. This will protect you from changing rates and commits your lender to funding your loan at the specified rate.
Make an offer! – Once you’ve been pre-approved and locked in your rates, you are free to make an offer on your new home!