The FINANCIAL — A new Wells Fargo survey shows that most consumers want to own a home, but their beliefs and expectations about what it takes to obtain financing demonstrate some consumer confusion and misinformation.
The second annual “How America Views Homeownership” survey by Wells Fargo & Company and Ipsos Public Affairs found that 65 percent of respondents feel homeownership is a dream come true or an accomplishment to be proud of, and 72 percent think now is a good time to buy. But their perceptions about what it takes to buy a home, including perceived barriers, show opportunities for homebuyer education.
The new data shows that some consumers continue to overestimate what they need to qualify for a home loan. Two-thirds believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. (With multiple credit score models and investor guidelines, a score of over 780 is generally considered “excellent,” and over 660 is considered “good.”) Consumers also overestimate the down payment funds needed to qualify for a home loan, with 36 percent thinking a 20 percent down payment is always required. Results show that when they’re ready to buy a home, consumers also want a lending experience that’s both convenient and personal, combining online tools with human guidance (73 percent).
“The American aspiration for homeownership is alive and well,” said Franklin Codel, Head of Mortgage Production for Wells Fargo Home Mortgage. “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.”
An overview of selected survey results follows; see the supplement below for more detailed data.
Renters and Diverse Consumers Want to Buy
People who currently rent show a desire to buy homes, with only one in 10 saying they prefer renting over owning. Interest in buying is also notable among diverse audiences: 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 rose 15 points over last year (from 22 percent to 37 percent).
Attitudes about homeownership are positive, but consumers’ misperceptions about credit score, down payment and income requirements persist. Despite efforts by lenders and the government to enhance the availability of credit and to introduce low down payment programs, many aspiring homeowners again report a lack of awareness about home financing options.
The 2015 survey shows that many consumers have high expectations about the credit score needed to qualify for a mortgage, and may overemphasize credit score as a single factor that determines whether they can buy a home. But credit score is not the whole story.
“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,” Codel said. “Wells Fargo considers a loan 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.”
Despite a wide variety of loan options, 21 percent of respondents in the general population and more than a quarter of African-American and Hispanic respondents identify lack of funds for a down payment as a barrier to homeownership. Fifty-eight percent of African-Americans and 55 percent of Hispanics report the belief that a 20 percent down payment is required. In reality, options may be available with down payments as low as 3 percent or 3.5 percent for different loan programs.
Consumer Preference: Online Access with Human Touch
When they are ready to buy a home, consumers want a high-tech experience combined with a human touch. They are willing to invest their time in consultation with mortgage and real estate professionals but don’t want to look at properties that don’t meet their specifications. The survey shows that consumers want both convenience and personal guidance in the mortgage and homebuying process.
When thinking about applying for a mortgage, most respondents are open to using technology as long as a person is available to assist them. Nine in 10 respondents agree that they prefer to have a personal connection with their lender – someone to answer their questions and walk 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.
Combined with human guidance, online tools offer convenience and transparency to help consumers confidently navigate the homebuying process. For example, Wells Fargo’s yourLoanTrackerSM enables eligible customers to track the status of their home loan application and exchange information electronically, all while working closely with a home mortgage consultant.
“Consumers want the best of both worlds so they can take care of their home financing needs when, where, and how they want to, while still receiving the personal service they expect from a lender,” Codel said. “Wells Fargo offers that combination with the digital capabilities of yourLoanTracker and 7,500-plus home mortgage consultants across the country. Despite positive feelings about homeownership, 80 percent of survey respondents who do not own their home perceive the homebuying process to be a hassle – we want to make it easier by combining digital convenience with local expertise and support every step of the way.”
Wells Fargo Home Mortgage provides a wide range of loan products and programs to serve qualified borrowers, including programs focused on the needs of low- to moderate-income and first-time homebuyers.
2015 “How America Views Homeownership” Survey: Data Supplement
Positive Feelings and Desire for Homeownership Are Strong
Nearly two-thirds of respondents view homeownership as a dream come true or an accomplishment to be proud of. When asked how they would complete the phrase “To me, homeownership is…”
54% chose “an achievement to be proud of.”
30% chose “a dream come true.”
A combined 65% say homeownership is “a dream come true” and/or “an accomplishment to be proud of.”
72% agree that now is a good time to buy a home (up from 68% last year).
They also see the financial benefits of homeownership, with 43% saying it’s a good way to build equity or more assets.
Among those who currently rent, only 12% (about one in 10) say that homeownership is not for them and they prefer renting, indicating that most people who currently rent want to buy a home someday.
Diverse audiences are emerging as the largest segments of potential homebuyers.
While 17% of the general population says that they are considering buying a home in the next two years, 37% of African-Americans and 31% of Hispanics say the same thing. (These figures include respondents of all current living situations, both those who currently rent and those who currently own. The question about whether the respondent is considering purchasing a home in the next two years notes that “This could be buying your first home, purchasing a second home, or moving to a different home.”)
This may be at least partly attributed to the fact that proportionally fewer African-American and Hispanic respondents currently own homes, and people who don’t currently own may be more likely to be considering buying in the near future. 66% of the general population currently owns, compared to 51% of Hispanics and 50% of African-Americans who currently own.
More African-Americans are considering buying a home compared to last year. In 2015, 37% of African-Americans are considering purchasing a home in the next two years, compared to 22% in last year’s survey.
While many consumers want to become homeowners, many also see potential barriers because of persistent misconceptions about what it takes to qualify for a home loan.
People see themselves as financially responsible, consistent with last year’s findings.
85% of respondents say that they understand how to manage, save, earn and invest their money.
64% overall have a nest egg or rainy day fund. Saving appears to have increased among Millennials and among current renters.
Millennials who have a nest egg increased – 55% last year, 62% this year.
Renters who have a nest egg also increased – 44% last year, 50% this year.
82% of all respondents say that they generally do not spend beyond their means.
80% say that they know and understand the financial process involved in purchasing a home.
Millennials’ reported knowledge has increased – 69% say that they know and understand the financial process involved in purchasing a home, up from 61% among the same age group last year.
Still, Millennials are less knowledgeable than the general population (69% of Millennials compared to 80% of the general population).
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).
But many still hold misconceptions or are unsure about what it takes to finance a home purchase, especially when related to credit scores and down payments, which may make them believe they cannot qualify.
67% of respondents agree with the statement “I need to have a very good credit score to buy a home.”
When asked what they consider a “good credit score,” nearly half of respondents (45%) chose “over 780.”
In reality, while there are multiple credit score models and investor guidelines, a score of over 780 is generally considered “excellent,” and over 660 is generally considered “good.”
Many consumers may have overly high expectations for the credit score they need to qualify for a mortgage.
29% of respondents are unsure of the credit score needed to obtain a mortgage.
One of the most commonly identified barriers to homeownership was lacking funds for a down payment (21% of respondents).
But many among the general population have a mistaken belief of what is required: 36% believe that a 20% down payment is always required.
A higher proportion of African-Americans and Hispanics hold this belief, at 58% at 55% respectively.
In reality, there are other options with lower down payments that some borrowers may be eligible for, including loan programs with 3% down payment options.
Additionally, debt proves to be a 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.”
Those who identify existing debt as a barrier to homeownership (259 respondents) were asked what kind of debt they have. 69% of them say credit card debt, 45% say student loans, 44% say car loans, and 26% say other.
Fewer Millennials (ages 18-34) than older respondents specify credit card debt as the type of debt holding them back from homeownership – 64% (of 86 Millennial respondents) compared to 71% (of 109 respondents) for ages 35-54 and 75% (of 64 respondents) for ages 55 and older.
Other aspects of the homebuying process are well understood by many consumers:
90% of respondents are aware that the homebuying process has other associated costs they need to be prepared for, such as attorney fees, agent fees, inspector fees, and insurance costs.
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.
Only 20% believe “Parents and other relatives cannot give you money for a down payment; you have to have the money for the entire down payment yourself.”
However, higher proportions of Hispanics (38%) and African-Americans (33%) believe that’s true.
In fact, some loan programs allow borrowers to use certain amounts of gift money for down payments. For example, in some instances, Wells Fargo customers may use gift funds for up to 3% of their down payment on some loans when their total down payment is 5% or more (i.e. when the loan-to-value ratio is 95% or less).
Only 16% agree with the misconception “Only people with high income can qualify for a mortgage.”
However, higher proportions of Hispanics (29%) and African-Americans (27%) believe that’s true.
Consumer Preference: Online Access with Human Touch
When they are ready to buy a home, consumers want the best of both worlds in the mortgage process – convenience and personal guidance.
When consumers are thinking about applying for a mortgage, doing some research online is the most common first step (29% of respondents), followed by talking to a mortgage lender (17%), talking to someone at their bank (14%), asking family or friends for advice (11%), and speaking with a real estate agent (9%) or consulting a financial adviser (9%).
When applying for a mortgage, most consumers are open to using technology as long as human assistance is also available.
They want to be engaged throughout the mortgage process, with 92% saying they want to be able to see each step in the process so they can understand what’s happening.
Additionally, 89% of people prefer to have a personal connection with their lender – someone to answer questions and walk through the process.
79% agree that completing the mortgage process online would be convenient.
73% say that they would be comfortable completing the mortgage process online as long as they knew they could speak with someone when needed.
While more than half prefer to interact with their lender in person (57%), about a third prefer a mix of in-person, online (including mobile apps) and phone interaction.
Similarly, half (50%) prefer to submit required paperwork in person, 17% prefer to do it electronically (online or via mobile apps) and 27% prefer a mix of methods including in-person, electronic, mail and fax.
Electronic tools for the mortgage process (e-lending) offer that mix of convenience, transparency and human guidance when desired.
For example, Wells Fargo’s yourLoanTrackerSM lets eligible customers track the status of their home loan application and exchange information electronically via a computer or mobile device, all while working closely with a home mortgage consultant.