According to the U.S. Census Bureau, by the year 2024, 75 percent of the expected 14 million new households (renters and owners) in the U.S. will be diverse. In fact, African Americans are projected to represent 17 percent, or the third largest segment, of the new households.
However, additional research concludes that the lack of exposure to generations of long-term homeownership and the persistence of myths about home buying may keep future homebuyers on the fence.
You want to own your own home, but you’ve heard it’s tough to get a loan. You assume you don’t have enough saved for a down payment, or your credit score or income isn’t high enough. So you put off applying, or you close the door on ever buying a home.
Despite these fears and factors, Wells Fargo has learned through a series of consumer surveys with Ipsos Public Affairs that African Americans view homeownership positively. According to the 2016 survey, 90 percent of African Americans say homeownership is a “dream come true,” 79 percent say it’s essential for building families and 51 percent are considering buying a home in the next two years.
If you’re one of those people, you may be closer to homeownership than you think. Here are some common myths about home buying, and the truth behind them.
Myth No. 1: I need a perfect credit score to buy a home, or I need more credit history.
If you think this, you’re not alone. In our survey, nearly two-thirds of people believe they need a very good credit score to buy a home, with one-third thinking a “good credit score” is over 780. The truth is that a score of over 780 is generally considered “excellent,” and over 660 is generally considered “good.”
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. The important thing to remember is that a lender looks at your entire financial picture, not just credit score – so find out what options you may have before excluding yourself.
Myth No. 2: I need a down payment of at least 20%.
This is a common misconception. In Wells Fargo’s survey, more than a third of people believe a 20-percent down payment is required. The belief was even more common among African Americans (48 percent).
In reality, you may have options. Some financing programs allow qualified homebuyers to put down as little as 3 percent. You may be allowed to use monetary gifts from family or friends for all or part of the down payment.
Despite a wide variety of loan options, almost a quarter of people in the survey say difficulty saving enough money for a down payment is a barrier to homeownership for them. But it could be less of a barrier than they think. A home mortgage consultant can walk you through your options.
Myth No. 3: I need to make more money to qualify for a mortgage.
Income is an important factor in qualifying for a home loan, but don’t assume it has to be high. Financing programs are available for a wide range of incomes. The key is demonstrating your ability to repay the 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.
If you want to buy a home but you assume you won’t qualify, it’s worth a closer look. A home mortgage consultant can discuss your specific situation and options you may have. Don’t rule yourself out before busting the myths and learning the facts.
Cerita Battles is Senior Vice President and Head of Retail Diverse Segments at Wells Fargo Home Mortgage.