Sign up for Hawaii home remodeling tips

Home Buyer Lending Myths

Tim O’Leary
Assistant Vice President
Home Loan Manager
NMLS# 316266
Honolulu HomeLoans

Today mortgage lending is not what it used to be. It’s better. It’s better because lenders are making better decisions and that’s great for buyers. Some say ‘it’s hard to get a loan nowadays,’ or ‘you need a huge down payment in order to buy.’ Well, I’d like to demystify some of the leading Home Buyer Lending Myths and, hopefully, shed some light of truth……

Myth #1 Buyers need a 20% cash down payment to buy a home

No Down The USDA Rural Development and Department of Veterans Affairs (VA Loan) programs both offer 0% down payment options. In the case of the USDA, there are income and location restrictions. For VA loans, active military, nonactive and retired veterans, reservists, and National Guard are often eligible based on their period, type, and years of service.

3.5% Down For those who do not qualify for one of these No Down programs, there’s FHA financing. For years this program was forgotten, but with today’s tighter lending standards, FHA is an old friend, with loan amounts up to $721,050 with a minimum of 3.5% down payment. Both FHA and VA loans are known as assumable, which means the next qualified buyer can assume the remainder of your loan. This could prove to be a great advantage when rates climb.

5.00% Down Yet another option is Conventional financing with mortgage insurance. Whether it’s a single family dwelling, townhouse, or condo, mortgage insurance allows for buyers to purchase homes by ‘insuring’ the lender against default. The buyer pays either a monthly premium, or it can be financed into the loan. The monthly premium may be removed after a 20% equity position has been attained. Understand that many of your friends who bought their first home probably did so with less than 20% down payment. Discover your options today.

Myth #2 Buyers must have perfect credit

Credit scores play a significant role when applying for a mortgage, but credit ‘blemishes’ are considered normal. Credit scores can dictate your interest rate and/or the cost for a Conventional loan. For Government loans, such as FHA, VA, and USDA, lower credit scores have less impact on interest rates.

The last two years of credit history account for 70 percent of a credit score.

Here are a few tips to remember to keep your credit score high: Pay your bills on time every month.

Keep credit card balances low, or pay them off each month and only use up to 30% of availability.

Have at least 3 to 6 active accounts. This shows your ability to manage credit. Avoid closing credit card accounts, especially ones you’ve had for a long time.

Avoid applying for new credit, loans, and credit cards if you already have a sufficient credit history.

Myth #3 Banks are not lending money

This is the most recent myth. Banks and Mortgage Banks are lending today in a more responsible manner and at high volume to qualified borrowers.

Qualified borrowers are individuals who: Can document sufficient income.

Live a lifestyle within their means and do not overextend themselves.

Show the ability to save money in addition to their current living expenses.

When it comes to buying your first home or your next home, it’s best to make a plan which includes professional advice from a Mortgage Loan Officer. The more educated you are about your qualifications, the more pleasant your home buying experience can be.

Open House Guide
Mortgage Rates