Are Bad Assumptions Sidelining Homebuyers?

Do mortgage lenders and real estaternagents need to form a “truth squad” to combat misconceptions aboutrnhomeownership?  Freddie Mac’s vice presidentrnand Head of Single Family Sales thinks so. rnChristina Boyle, writing in the company’s Executive Perspectives blogrnsays consumer assumptions and bad information may be partially to blame for arnlagging housing market recovery. </p

First, Boyle says, consumers persistentlyrnoverestimate the size of the down payment they need to buy a home.  She quotes a recent survey of renters orrnpeople living in someone else’s home that was conducted in New York by Zelmanrn& Associates.  It found a widespreadrnassumption that lenders require equity of 11 to 15 percent!  Many of the respondents were in their primernhomebuying years and of those in the 25 to 34 year old age groups 38 percentrnsaid lenders demand minimum down payments of 15 percent.  Boyle points out that in fact it is possiblernto buy with as little as 3 to 5 percent and Freddie Mac’s purchase of mortgagesrnwith less than 10 percent equity more than quadrupled between 2009 andrn2013.  So far this year more than one inrnfive borrowers who took out conforming, conventional mortgages put down 10rnpercent or less.</p

Zelman also reported that “onlyrn28 percent (of all respondents) were optimistic that they could qualify for arnmortgage. This includes 30 percent of 25-29 year olds and 40 percent of 30-34rnyear olds.” That would mean 60 to 72 percent of the traditionalrn”first-time” homebuyer demographic may be underestimating theirrnpotential for getting a conforming, conventional mortgage with a low downrnpayment.  </p

Potential buyers also don’t realize</bthat down payments can be subsidized by others. rnGifts from family or grants or loans from non-profits or public agenciesrncan bridge some of the gap in savings. rnShe notes such programs as the American Dream Downpayment Initiative andrnthe HOME Investment Partnerships Program as resources of which homebuyersrnshould be made aware.</p