Cracking the homeownership code: Separating fact from fiction

Many young adults today, including Gen Z and millennials, are grappling with the belief that homeownership is out of reach. This sentiment is often fueled by misconceptions and outdated information about the housing market. FOX 5 real estate expert John Adams visited Good Day to separate fact from fiction.

Well, the road to homeownership is a real challenge for young people today. Home prices are skyrocketing, interest rates have doubled in the past couple of years, and the inventory of starter homes is just a fraction of what it should be, so competition is fierce.

Adams thinks it’s important to remember that many of today's first-time home buyers were growing up during the Great Recession of 2008, and they remember when home prices plummeted.  That market casts a shadow over the residential real estate market that hasn’t cleared up even now.

That experience was real, but things are different today. And Adams has identified three common misconceptions held by many first-time buyers:

Myth 1: Interest rates are at historic highs

A common belief is that current mortgage rates are the highest they’ve ever been. However, this perception is misleading. Historically, interest rates have seen much higher peaks. For example, in October 1981, rates soared to 18.63%—a far cry from today’s rates, which are closer to 6.75%. While today’s rates are higher than the record lows of 2.65% seen in 2021, they are relatively moderate compared to past decades.

Interest rates do fluctuate, and while they might rise or fall, waiting for rates to drop significantly can lead to higher home prices. It’s often more practical to purchase a home now and consider refinancing later if rates decrease.

Myth 2: A 20% down payment Is required

Many potential buyers believe that a 20% down payment is necessary to purchase a home. In reality, there are various options that require significantly less. For instance, FHA loans require only 3.5% down, and VA and USDA loans may not require any down payment at all, though they have specific eligibility rules.

Programs like Conventional 97, HomeReady, and HomePossible allow down payments as low as 3%, making homeownership more accessible than many realize. It’s essential for prospective buyers to explore these options and consult with experts who can help navigate the process.

Myth 3: Perfect credit Is a must for a mortgage

Another misconception is that only those with stellar credit scores can qualify for a mortgage. In fact, there are mortgage options available for those with lower credit scores. FHA loans, for example, are available to individuals with a credit score as low as 580 with a 3.5% down payment, or even 500 with a larger down payment. VA and USDA loans also do not have minimum credit score requirements.

The key is to evaluate the complete mortgage package and consider various programs that may offer down payment assistance or other benefits. It’s important to work with knowledgeable professionals who can provide guidance tailored to individual financial situations and goals.

By addressing these myths and gaining a clearer understanding of the home buying process, younger generations can approach homeownership with greater confidence and make informed decisions that align with their financial capabilities and long-term plans.

The bottom line is that you shouldn't give up. Meet with a real estate agent and learn the truth about home buying in today’s market, then meet with a mortgage lender to talk about getting pre-qualified. That’s the next step if you want to get started!

Atlanta native John Adams has been a real estate broker and investor in residential real estate for the past four decades.