The second most repeated myth we hear is: "My Credit Isn't Good Enough". The truth is that over 50% of approved mortgages have borrowers with FICO scores between 600-749.
What is a credit score? According to Investopedia, “a credit score is a statistical number that depicts a person’s creditworthiness. Lenders use a credit score to evaluate the probability that a person repays their debts. Companies generate a credit score for each person with a Social Security number using data from the person’s previous credit history.
A credit score is a three-digit number ranging from 300 to 850, with 850 as the highest score that a borrower can achieve. The higher the score, the more financially trustworthy a person is considered to be.
Fannie Mae’s survey also revealed that 59% of Americans either don’t know or are misinformed about what FICO credit score is necessary to qualify. Many Americans believe a ‘good’ score is 780 or higher.
To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans. As you can see on the right, 54.7% of approved mortgages had a FICO score between 600-749.
Over the last 12 months, the average FICO® Score for home purchases by Millennials was 721!
Don’t make the mistake of disqualifying yourself by thinking you need a 780 score.
According to a report by Trulia, “buying is cheaper than renting in 100 of the largest metro areas by an average of 37.7%.” That may have some thinking about buying a home instead of signing another lease extension, but does that make sense from a financial perspective?
In the report, Ralph McLaughlin, Trulia’s Chief Economist, explains:
“Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.”
The report listed five reasons why owning a home makes financial sense:
Mortgage payments can be fixed while rents go up.
Equity in your home can be a financial resource later.
You can build wealth without paying capital gains.
A mortgage can act as a forced savings account.
Overall, homeowners can enjoy greater wealth growth than renters.
Don't get caught in the rental trap.
They say the only guarantees in life are death and taxes, but it seems like they should also add rent increases to that list.
A whopping $478.5 billion was spent on rents in the U.S. in 2016. This represents an increase
of over $17.7 billion from the year before. As shown in the chart on the right, rents have increased consistently over the last 20+ years.
A homeowner's net worth is 45 times greater than a renter.
Every three years, the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).
In a Forbes article, NAR’s Chief Economist Lawrence Yun predicted that by the end of 2016, the net worth gap would widen even further to 45 times greater. The graph on the right demonstrates the results of the Federal Reserve studies and Yun’s prediction. The results of the latest survey covering 2014-2016 will be available in September 2017.
Put your housing cost to work for you.
Homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.
The latest National Housing Pulse Survey from NAR reveals that 85% of consumers believe that purchasing a home is a good financial decision. Yun comments:
“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math should not be overlooked.”
Can you guess what Myth #1 is? Check back here to learn about the BIGGEST myth that we encounter and dispel. Many buyers actually can qualify for good loans and programs, with lower down payments than they think.