A 20% Down Payment Requirement to Own a Home is a Myth and Not Mandatory for Mortgage Loan Approval
Ernest Campbell, Regional Diverse Segments Manager, Wells Fargo
(San Francisco, CA, Tuesday, May 15, 2018) – Many consumers desire to become homeowners, but there are some persistent myths that keep many on the fence. Knowing facts from myths are important in putting them in a position to be approved by a lender for a home loan. These three myths outline things you don’t need to qualify for a mortgage:
- You don’t need perfect credit – It’s important that prospective homebuyers know their credit score before applying for a mortgage loan. A borrower’s credit history may impact the interest rate or the amount of money that can be borrowed in relation to income. However, if your credit score isn’t perfect that doesn’t mean you won’t get approved.
- You don’t need a 20 percent down payment – In the current mortgage environment, a down payment is required for most loan programs. However, a 20% down payment requirement to own a home is a myth and not mandatory for mortgage loan approval. Loan programs do exist that allow for lower down payment options.
- You don’t need to earn a high income in order to afford a home – Income is an important factor in qualifying for a home loan. Your income helps lenders determine how much home you can afford. But it is a myth that you need to have a high income to get approved.
There are financing programs available for homebuyers with a range of credit scores or limited credit history. Some programs allow you to use rent, mobile phone or utility payments to show credit history. Additionally, some loan programs only require a 3 percent downpayment for qualified borrowers. This is helpful, as saving for a downpayment can be barrier to many potential homeowners. Keep in mind that some low down payment programs may require private mortgage insurance, which adds to monthly payment and overall loan cost. In terms of income, home loan lenders look at a variety of factors, including your income, assets, debt-to-income ratio, credit history, credit scores, and the amount of the loan compared to the value of the property. Your income needs to demonstrate you can afford the mortgage payment and can handle the other financial responsibilities that come with owning a home.
In 2017, Wells Fargo announced its commitment to create at least 250,000 African-American homeowners in 10 years with these goals: $60 billion in lending for home purchases; $15 million to support homebuyer education and counseling for African-American families and focus on increasing the diversity of their sales team. In the first year, they have helped to create more than 23,000 African-American homeowners and dedicated more than $1.8 million in grants to support homebuyer education and counseling.