Wells Fargo Survey Shows Gap in Homebuying Knowledge

Despite record low homeownership rates consumersrnhave not soured on the American dream. rnThe second annual edition of “How American Views Home Ownership” report byrnWells Fargo & Company details results of a survey conducted for the bank byrnIpsos Public Affairs that found attitudes toward it are positive, but consumersrnhave many misunderstandings about what it requires to become a homeowner.</p

The survey found that 65 percent ofrnrespondents view homeownership as a dream come true or as an accomplishment ofrnwhich to be proud and 72 percent think that now is a good time to buy. Theyrnalso see the financial benefits of homeownership, with 43% saying it’s a goodrnway to build equity or more assets.</p

Only one out of ten renters said theyrnwould prefer to rent over owning.  Higherrnproportions of African-Americans (37 percent) and Hispanics (31 percent) sayrnthey’re considering buying a home in the next two years compared to the generalrnpopulation (17 percent). In fact, the percentage of African-Americansrnconsidering buying within two years was up 15 points from the survey last year.rn</p

But respondents’ assumptions about whatrnit takes to become a homeowner and the barriers they perceive to doing so show,rnWells Fargo said, a need for homebuyer education.</p

The first misconception centers on credit scores.  Two-thirds of respondents believe they need arn“very good” credit score to qualify for a mortgage but 45 percent defined a “good”rnscore as over 780 which is actually considered excellent by most scoring modelsrnwhile a score over 660 is considered good. rnFurther, respondents appear to overemphasize the importance of therncredit score in determining their credit worthiness</p

Franklin Codel, Head of MortgagernProduction for Wells Fargo Home Mortgage said, “Creditworthiness isn’trndetermined based on a single factor, so potential homebuyers should find outrnwhat options may be available before excluding themselves based on credit scorernalone.”  He said the applicant’s entirernfinancial picture, including income, assets, debt-to-income ratio, creditrnhistory, credit scores, and the amount of the loan compared to the value of thernproperty are all part of the equation.</p

Twenty-one percent of all respondentsrnand more than a quarter of African-American and Hispanic respondents identifiedrna lack of funds for a downpayment as a barrier to homeownership and they overestimaternthe amount of down payment needed to qualify for a home loan.  Thirty-six percent of all respondents and overrn50 percent of minority respondents assume a 20 percent down payment is alwaysrnrequired even though there are programs that require downpayments as low as 3rnpercent.</p

Debt is also a homeownership barrierrnfor some. When asked to identify factors that are or could potentially be theirrnbiggest barriers to buying a home (they could select up to three), 13% of allrnrespondents chose “My existing debt.”  Ofrnthose who identified a type of debt as a barrier 69 percent cited credit cards,rn45 percent said student debt, and 44 percent said car loans.</p

Despite their misconceptions 80 percentrnof respondents say they know and understand the financial process involved inrnbuying a home.  While millennials presumedrnknowledge increased from 61 percent in last year’s survey, only 69 percent nowrnclaim to understand the process.  Knowledgernis lower among renters than homeowners (64% of renters, 89% of owners), butrnrenters have improved year over year (55% in 2014, 64% in 2015).</p

However, awareness of different typesrnof mortgages decreased from last year. Respondents were asked to select all therntypes of mortgages they’d heard of, and almost all the mortgage types listedrn(that were also tested last year) were recognized by fewer respondents (rangingrnbetween 2% and 17% fewer).</p

Other aspects of the homebuying processrnare well understood by many consumers with 90 percent being aware that therernare other costs associated with homebuying such as attorney’s fees andrninsurance premiums.   Only 39% believe “As long as you can affordrnthe monthly payments, you can get a mortgage” – so the majority understand thatrnit’s important to also have funds for other living expenses and a savingsrncushion.  Most were also aware they couldrnaccept help from parents or other relatives in qualifying for a mortgage.</p

Consumers say when they are ready to buyrna home they want a high-tech experience combined with a human touch.  Most respondents are open to using technologyrnin the mortgage process but nine in 10 said they want a personal connectionrnwith their lender – someone to answer their questions and walk them through thernprocess. Most people say they want to see each step in the process so they canrnunderstand what’s happening (92 percent); that completing the mortgage processrnonline would be convenient (79 percent); and that they would be comfortablerncompleting the mortgage process online as long as they knew they could speakrnwith someone when needed (73 percent). While many people prefer to interactrnwith their lender and submit paperwork in person, more than a quarter want arnmix of in-person, phone, mail, online and mobile interactions.</p

“The American aspiration for homeownershiprnis alive and well,” Codel said. “Homeownership has traditionally been thernvehicle through which many people build wealth and financial stability.rnHomebuying and its downstream financial benefits strengthen the U.S. economyrnwith strong neighborhoods and vital local businesses. For the millions ofrnconsumers who express a desire to own a home, it’s essential that lending andrnhousing professionals provide clear, simple information to build consumerrnconfidence about buying a home.”

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