By Vicki Ide, Tompkins Community Bank
According to the National Association of Realtors, the median age of first-time homebuyers is at an all-time high: 38. This isn’t because younger generations, like Gen Z and millennials, don’t want to buy a home. In fact, 40% of these generations think about buying a home at least once a week – but they simply don’t think they can afford home ownership.
More than half of young adults feel they’re at a disadvantage compared to previous generations when it comes to buying a home. This perception is largely fueled by myths surrounding the homebuying process.
After spending over 30 years in the banking industry, I can assure you: homeownership is more feasible than you may think.
Let’s break down some of the most common misconceptions and uncover practical solutions for first-time homebuyers.
Myth #1: Interest Rates Are Too High
There’s a misconception that today’s interest rates make homeownership impossible. However, history tells a different story. While it’s true that rates were significantly lower in 2021 — hitting a record low of 2.65%, interest rates in the 1980s were much higher than they are today.
In 1981, the average interest rate on a 30-year fixed mortgage soared to 18.44%, nearly three times today’s average of 6.76%. While today’s rates are higher than they were a few years ago, they offer more flexibility when it comes to home prices. When interest rates drop, home prices tend to rise. For example, in 2021, when rates were at record lows, the median home price surged to $346,900 — a 16.9% increase from 2020.
One key advantage of buying now? You can always refinance if rates decrease, but you can’t negotiate a lower purchase price once home values climb.
Myth #2: The 20% Down Payment
A 20% down payment is not a requirement for first-time buyers. In fact, multiple loan programs allow for much smaller down payments. Here are the programs to consider:
- Federal Housing Administration (FHA) Loans: Require as little as 3.5% down.
- While you’ll have to obtain private mortgage insurance (PMI), you can remove it once you have 20% equity in your new home.
- Conventional Loans with PMI: Reduce your down payment by supplementing a conventional loan with PMI. If qualified, it could require as little as 5% down.
- The cost of PMI depends on several factors, including credit score, loan size, and total down payment.
- First Time Homebuyer programs: Typically require less down payment but are income specific. They are designed to assist low-to-moderate income borrowers. The income limitations are set by HUD.
- Down Payment Assistance Programs: There are more than 2,000 programs across the country that provide down payment assistance.
- While it’s always useful to talk to a lender about your options, you can also use free online resources to learn more about the programs that may be available to you.
Additionally, some government-backed loans require no down payment at all, including:
- Veterans Affairs Loans: Available to veterans and active-duty service members.
- USDA Loans: Designed for buyers in rural areas with low to moderate income.
There are also specialized assistance programs for teachers, first responders, healthcare workers, and Indigenous communities — making homeownership more accessible than many realize.
Myth #3: My Credit Score Needs to be Perfect
While a higher credit score can help secure better loan terms, you don’t need flawless credit to qualify for a mortgage. Many of the loans mentioned above require a credit score above 580 for a 3.5% down payment.
If you’re not sure if it’s the right time for you to buy a home, talk with a mortgage lender or because of other financial uncertainties, fill out a homebuyer readiness quiz, like this one from MGIC (Mortgage Guaranty Insurance Corporation), or explore the pros and cons of homeownership with this “Buy Now vs. Wait” calculator.
Myth #4: You Can’t Buy a Home if You Have Student Loans
Many assume that carrying student loan debt disqualifies them from buying a home. In reality, student loans are treated like any other debt — such as car loans or credit cards.
By making consistent, on-time payments, your student loan can help build credit and strengthen your mortgage application. Lenders primarily assess your debt-to-income (DTI) ratio, meaning responsible debt management is more important than the debt itself.
The Bottom Line
The dream of homeownership is more attainable than many young buyers realize. While rising interest rates, down payment concerns, and credit score fears can feel overwhelming, the truth is, there are multiple pathways to buying a home. By understanding the facts, exploring available loan programs, and working with knowledgeable professionals, you can take control of your homebuying journey with confidence.
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Source: bctv