Despite record low homeownership rates consumers
have not soured on the American dream.
The second annual edition of "How American Views Home Ownership" report by
Wells Fargo & Company details results of a survey conducted for the bank by
Ipsos Public Affairs that found attitudes toward it are positive, but consumers
have many misunderstandings about what it requires to become a homeowner.
The survey found that 65 percent of
respondents view homeownership as a dream come true or as an accomplishment of
which to be proud and 72 percent think that now is a good time to buy. They
also see the financial benefits of homeownership, with 43% saying it's a good
way to build equity or more assets.
Only one out of ten renters said they
would prefer to rent over owning. Higher
proportions of African-Americans (37 percent) and Hispanics (31 percent) say
they're considering buying a home in the next two years compared to the general
population (17 percent). In fact, the percentage of African-Americans
considering buying within two years was up 15 points from the survey last year.
But respondents' assumptions about what
it takes to become a homeowner and the barriers they perceive to doing so show,
Wells Fargo said, a need for homebuyer education.
The first misconception centers on credit scores. Two-thirds of respondents believe they need a
"very good" credit score to qualify for a mortgage but 45 percent defined a "good"
score as over 780 which is actually considered excellent by most scoring models
while a score over 660 is considered good.
Further, respondents appear to overemphasize the importance of the
credit score in determining their credit worthiness
Franklin Codel, Head of Mortgage
Production for Wells Fargo Home Mortgage said, "Creditworthiness isn't
determined based on a single factor, so potential homebuyers should find out
what options may be available before excluding themselves based on credit score
alone." He said the applicant's entire
financial picture, including income, assets, debt-to-income ratio, credit
history, credit scores, and the amount of the loan compared to the value of the
property are all part of the equation.
Twenty-one percent of all respondents
and more than a quarter of African-American and Hispanic respondents identified
a lack of funds for a downpayment as a barrier to homeownership and they overestimate
the amount of down payment needed to qualify for a home loan. Thirty-six percent of all respondents and over
50 percent of minority respondents assume a 20 percent down payment is always
required even though there are programs that require downpayments as low as 3
percent.
Debt is also a homeownership barrier
for some. When asked to identify factors that are or could potentially be their
biggest barriers to buying a home (they could select up to three), 13% of all
respondents chose "My existing debt." Of
those who identified a type of debt as a barrier 69 percent cited credit cards,
45 percent said student debt, and 44 percent said car loans.
Despite their misconceptions 80 percent
of respondents say they know and understand the financial process involved in
buying a home. While millennials presumed
knowledge increased from 61 percent in last year's survey, only 69 percent now
claim to understand the process. Knowledge
is lower among renters than homeowners (64% of renters, 89% of owners), but
renters have improved year over year (55% in 2014, 64% in 2015).
However, awareness of different types
of mortgages decreased from last year. Respondents were asked to select all the
types of mortgages they'd heard of, and almost all the mortgage types listed
(that were also tested last year) were recognized by fewer respondents (ranging
between 2% and 17% fewer).
Other aspects of the homebuying process
are well understood by many consumers with 90 percent being aware that there
are other costs associated with homebuying such as attorney's fees and
insurance premiums. Only 39% believe "As long as you can afford
the monthly payments, you can get a mortgage" - so the majority understand that
it's important to also have funds for other living expenses and a savings
cushion. Most were also aware they could
accept help from parents or other relatives in qualifying for a mortgage.
Consumers say when they are ready to buy
a home they want a high-tech experience combined with a human touch. Most respondents are open to using technology
in the mortgage process but nine in 10 said they want a personal connection
with their lender - someone to answer their questions and walk them through the
process. Most people say they want to see each step in the process so they can
understand what's happening (92 percent); that completing the mortgage process
online would be convenient (79 percent); and that they would be comfortable
completing the mortgage process online as long as they knew they could speak
with someone when needed (73 percent). While many people prefer to interact
with their lender and submit paperwork in person, more than a quarter want a
mix of in-person, phone, mail, online and mobile interactions.
"The American aspiration for homeownership
is alive and well," Codel said. "Homeownership has traditionally been the
vehicle through which many people build wealth and financial stability.
Homebuying and its downstream financial benefits strengthen the U.S. economy
with strong neighborhoods and vital local businesses. For the millions of
consumers who express a desire to own a home, it's essential that lending and
housing professionals provide clear, simple information to build consumer
confidence about buying a home."