There are many common perceived hurdles to homeownership in Orange County, CA. However, studies have shown that many of the obstacles mentioned are perceived, not real.
A recent study by Fannie Mae, What Do Consumers Know About The Mortgage Qualification Criteria?, revealed that many consumers are either unsure or misinformed regarding the minimum requirements necessary to obtain a mortgage. Let’s break down three such challenges.
Down Payment
Perceptions
Many Orange County renters believe that the lack of a big enough down payment is preventing them from moving forward with the purchase of a home. According to the Fannie Mae report:
40% of all renters don’t know what down payment is required
15% think you need at least 20% down
An additional 4% think you need at least 10% down
The Reality
There are programs offered by Fannie Mae, Freddie Mac and FHA that require as little as 3-3.5% down. VA actually allows $0 down payment up to a purchase price of $625,500 in Orange County. According to the National Association of Realtors, the typical down payment for a first time buyer is 6%.
Credit Score
Perceptions
Many Orange County renters believe they do not have a high enough FICO score to move forward with the purchase of a home. According to the Fannie Mae report:
54% of all renters don’t know what credit score is required
5% think you need at least a 740 credit score
The Reality
Many mortgages are closed where the borrower has a FICO score less than 700. According to Ellie Mae, the average credit score on a closed FHA purchase is 687 and the average credit score on all loans is 722. Some Orange County lenders will allow the FICO score on an FHA or VA loan to be as low as 580, even with only 3.5% down payment on FHA or $0 down on VA. FHA and VA allow require a two year wait after a bankruptcy.
Back End Debt-to-Income Ratio (DTI)
Perceptions
Many Orange County renters have believe that they carry too much debt which is preventing them from moving forward with the purchase of a home. According to the Fannie Mae report:
59% of all renters don’t know what DTI is acceptable
25% think you need at under 25%
7% think you need under 39%
The Reality
Lenders like to see a back-end ratio that does not exceed 36%. Fannie Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% based on credit score and other requirements. FHA is more flexible, allowing the total debt to income to be over 50% if an Automated Underwriting System allows it. VA is even more flexible and does not actually have a maximum DTI. The “guideline” is 41%, but VA loans have been closed with the DTI in the 60% range. VA is more concerned with “residual” income.
Bottom Line
Don’t let a lack of knowledge or misinformation keep your family from buying an Orange County home in 2016. Meet with an Orange County lender who can evaluate if your ability to buy now and provide an analysis, including a Rent versus Own.
Authored by Tim Storm, an Orange County Loan Officer. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. You can also visit my blog at www.OCHomeBuyerLoans.com. I will prepare custom loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.