Do you remember MythBusters? It was one of your Earth television shows featuring a couple of inquisitive yet skeptical hosts who, with the help of a well-trained, “do not try this at home” team, would investigate and test the validity of common myths to which many Earthlings subscribe. Of course, my favorite episodes were those focusing on outer space and… wait for it…
Big Foot Aliens and Zombies!
I won’t give the episode away, but you can still find it streaming. Feel free to stop by my spaceship and we can watch together—with my extensive antennae array, I can get programming from just about anywhere, Earth and beyond. Just bring your snack of choice and get me some of those orange circus peanuts. They are sooooo yummy!
I wish the show was still on because I’d pitch an episode to them on the myths of mortgage lending. Yes, I realize that this is a very niche topic to be broadcast mainstream, but that is the very reason such an episode would be so valuable.
Credit union mortgage lenders all know the mortgage business because we live it day-in and day-out. And we are very aware of the many mortgage myths that are hovering in the stratosphere; however, the chances are strong that your members who are seeking a way to make their dreams of homeownership a reality believe these myths and oftentimes don’t pursue a home loan because of them.
In fact, when asked to identify accurate key mortgage qualification criteria, such as down payment, credit score and debt-to-income ratio, about one half of potential borrowers were unable to provide an answer, according to Fannie Mae research. And, among those who did provide an answer, only 5-16 percent chose an answer within the correct range.
Since the real life MythBusters aren’t available to help debunk these falsehoods, it falls on our shoulders (granted, I have no shoulders, so my tentacles will have to suffice). Although there are quite a few mortgage myths, I selected my Top Three on which to focus. Let’s get bustin’!
- Myth #1: A member’s credit must be nearly perfect. While there’s no doubt that a high credit score could help a member get a better loan, it isn’t a deal-breaker if their score is somewhere in the middle. For example, Fannie Mae’s requirement is 620 for a fixed rate home loan (640 for adjustable rate), so even if a member has some blemishes, if they pay their bills and have a steady income, they probably don’t have much to worry about.
- Myth #2: A member must have a down payment of at least 20% of the purchase price. According to Fannie Mae, 75% of consumers are not aware of low down payment programs. There are housing programs that allow members to put down as little as 3-5 percent of the sale price. And, if you look at government programs, such as VA, USDA and FHA, low to no down payment is not out of the question. Read more about these government loans in my previous post, The Red, White and Blue Mortgage.
- Myth #3: A member’s income determines their loan amount. Many members assume that a higher income means they can land a larger mortgage, but this isn’t always the case. Debt is actually the biggest factor that will affect mortgage qualification. If they’re carrying a lot of extra debt (Fannie Mae caps debt-to-income at 45%), it will cause credit union mortgage lenders to reduce how much they can offer a member for a mortgage.
This is but the apex of the mortgage myth meteorite. As I mentioned earlier, there are many common myths concerning home loans—what are some that you’ve helped clarify with your members? Please share them so that we can all better assist our members who are being influenced by these myths.
There is one final myth I’d like to debunk—crop circles. These definitely are not from me or any of my fellow Amicitians. We have much more productive things to do than ruin these hard-working farmers’ crops. Besides, the corn triggers my allergies—you think I’m slimy now? You have no idea….
Happy Mythbusting!
Mortgage qualification research provided by Fannie Mae.