St Casimirs Mortgage Minute

Dispelling Lending Myths....


 By Danny Gardner, vice president of single-family affordable lending, Freddie Mac


Obstacles in the path to homeownership have reached mythical proportions, preventing many would-be homebuyers from even starting the journey. Loan originators are in a unique position to help cut borrowers’ concerns down to actual size and give them confidence that they can achieve their goals.

Myths about mortgages abound in the minds of many homebuyers. Loan originators must be aware of the presence of these myths and, armed with the facts, provide potential borrowers with a better understanding of the realities and possibilities of the loan-origination process. Let’s take a look at some of the most common myths, along with the facts originators can use to dispel these fairy tales.

Downpayment-amount myth

The notion that downpayments have to be in the 20 percent range is the most persistent myth out there, and we need to debunk it. The average downpayment among first-time homebuyers in 2016 was 6 percent, and for repeat buyers, downpayments were between 13 percent and 14 percent, according to the National Association of Realtors. Some mortgage products let eligible borrowers put down as little as 3 percent — or even less, in some cases.
Many people believe that the best — perhaps only — low-downpayment option is a Federal Housing Administration (FHA) loan. It’s worth checking into other offerings. A conventional product might prove more affordable for some borrowers. Loan originators can help spread this word to real estate professionals and consumers.
A survey of real estate professionals conducted for Freddie Mac by market-research company, GfK, found that 50 percent of potential borrowers trust real estate professionals to educate them on mortgage products that best meet their needs. Eighty percent of respondents were extremely or moderately familiar with FHA products, yet only around one-quarter knew about low-downpayment products from Freddie Mac or Fannie Mae (the government-sponsored enterprises, or GSEs).
More importantly, loan originators need to know that the return of low-downpayment loans does not mean we’re about to repeat the housing crisis. The eligibility requirements on these new loans set a higher creditworthiness bar and aim to expand homeownership responsibly.

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