Owning a home is still a dream for many Americans and is viewed as a way to build wealth and strong communities. The 2017 State of Housing in Black America Report published by the National Association of Real Estate Brokers states that African Americans are applying for mortgages at higher rates than before.
However, there are still myths about the homeownership process that are keeping qualified buyers on the fence. It is important for homebuyers to learn about the requirements needed to become a homeowner. However, here are three things not needed to gain mortgage loan approval.
Perfect credit is not necessary to qualify for a mortgage loan
Credit history is very important when applying for a mortgage. It can impact the interest rate or the amount of money the lender will allow you to borrow. But, that credit score does not have to be perfect in order for a lender to grant loan approval. In fact, there are financing programs available for homebuyers with a range of credit scores or limited credit history, and some programs allow you to use rent, mobile phone or utility payments to show credit history.
It’s important for consumers to know their credit score and understand what’s on their credit report before beginning the mortgage process. Knowing this important information is helpful in understanding if they are ready to purchase or may need some assistance to prepare for loan approval. There are resources aspiring homeowners can access to learn just where they stand when it comes to credit. A free report from each of the three credit bureaus is available to consumers once a year at www.annualcreditreport.com.
Many resources are available for those who want to learn and understand more about credit and improving their scores, including the Wells Fargo Smarter CreditTM center at www.wellsfargo.com/smarter_credit.
A 20 percent down payment is not required
The 20 percent down payment requirement for home loan approval is a myth. It is true that for most mortgage loans, a down payment is required. And, if you can save a 20 percent down payment to purchase a home, that’s great. There are many benefits to a homebuyer who has that kind of down payment. However, loan programs do exist that do not require a 20 percent down payment. Some programs only require 3 percent down for qualified buyers, and if the homebuyer is a veteran, heor she may be able to purchase a home with zero percent down.
High income is not needed to be a homeowner
It is a myth that a homebuyer needs to have a high income to afford a home. It is true that in many markets across the country home costs are rising, but being rich is not a requirement of owning.
For loan approval, the buyer needs to demonstrate they can afford the monthly mortgage payment and can handle the other financial responsibilities that come with owning a home.
In addition to income, lenders review your assets, debt-to-income ratio, credit history, credit scores, and the amount of the loan compared to the value of the property.
Wells Fargo is committed to advancing homeownership in African-American communities around the country and wants to be instrumental in raising the homeownership rate for this demographic. In fact, we have completed the first year of our African-American lending commitment goal of creating at least 250,000 homeowners in 2027. In 2017, Wells Fargo helped more than 21,000 African–American families become homeowners.
We continue to work hard within our business and by collaborating with local nonprofits to reach out and support homeownership in the African-American community. In D.C.we are proud to work with local organizations like the National Urban League, National Association of Real Estate Brokers (NAREB) and with city officials to help prepare homebuyers for the process and assist them during their homeownership journey. This includes engaging in community conversations and participating in homebuyer education events.
Homes are the building blocks for the American way of life. They make up our neighborhoods and our communities and play a pivotal role in our culture and in our civic engagement. Wells Fargo is committed to providing the support and guidance aspiring homeowners need to make their homeownership goals a reality.