Do mortgage lenders and real estate
agents need to form a "truth squad" to combat misconceptions about
homeownership? Freddie Mac's vice president
and Head of Single Family Sales thinks so.
Christina Boyle, writing in the company's Executive Perspectives blog
says consumer assumptions and bad information may be partially to blame for a
lagging housing market recovery.
First, Boyle says, consumers persistently
overestimate the size of the down payment they need to buy a home. She quotes a recent survey of renters or
people living in someone else's home that was conducted in New York by Zelman
& Associates. It found a widespread
assumption that lenders require equity of 11 to 15 percent! Many of the respondents were in their prime
homebuying years and of those in the 25 to 34 year old age groups 38 percent
said lenders demand minimum down payments of 15 percent. Boyle points out that in fact it is possible
to buy with as little as 3 to 5 percent and Freddie Mac's purchase of mortgages
with less than 10 percent equity more than quadrupled between 2009 and
2013. So far this year more than one in
five borrowers who took out conforming, conventional mortgages put down 10
percent or less.
Zelman also reported that "only
28 percent (of all respondents) were optimistic that they could qualify for a
mortgage. This includes 30 percent of 25-29 year olds and 40 percent of 30-34
year olds." That would mean 60 to 72 percent of the traditional
"first-time" homebuyer demographic may be underestimating their
potential for getting a conforming, conventional mortgage with a low down
Potential buyers also don't realize
that down payments can be subsidized by others.
Gifts from family or grants or loans from non-profits or public agencies
can bridge some of the gap in savings.
She notes such programs as the American Dream Downpayment Initiative and
the HOME Investment Partnerships Program as resources of which homebuyers
should be made aware.
Boyle said more consumers should be
informed about how downpayments are determined and how they can hold down the
out-of-pocket costs of buying a home.
June is National Homeownership Month and there are seminars, counseling
sessions, and education events being held all around the country.
Boyle says that with mortgage rates
still near historic lows, new homeownership opportunities are poised to grow. "The
challenge is finding those who don't realize they can afford to finance a home
and showing them how they can."