Despite the housing meltdown in 2008 that left many homeowners with underwater mortgages and foreclosure threats, most consumers still aspire to own a home. That's just one conclusion that we can draw from the second annual survey from Wells Fargo on the subject, "How America Views Homeownership." Another conclusion is that misconceptions about home buying may be hampering these aspirations. The Wells Fargo release notes that the survey "show(s) opportunities for homebuyer education."
Almost two-thirds of survey respondents (65%) considered homeownership to be either "a dream come true" or "an accomplishment to be proud of." A majority of respondents put the housing crisis in the rear-view mirror, with 72% saying that now is a good time to purchase a home (a 4% increase over last year). 43% consider a home purchase an excellent way to build equity.
The survey implies that housing demand exists if the economy cooperates and suitable housing choices are available. Most renters intend to buy homes someday if possible, with only 12% showing a preference for renting and no intentions of buying.
An increasing number of minorities are on board with homeownership. 37% of African-Americans and 31% of Hispanics say that they plan to buy a home in the next two years, as compared to 17% of all respondents.
80% of respondents reported that they know and understand the financial aspects of the home buying process. Groups that are less likely to have owned a home before, such as millennials and renters, reported lower rates of understanding (between 60% and 70%). However, responses to other questions showed higher rates of misunderstandings about the home buying process. As with many areas of life, it appears that we think we know more than we actually do.
The misunderstandings are a mixture of perceived barriers that do not exist and lack of knowledge about home buying qualifications and procedures. Here are a few of the more pervasive ones.
- Credit Score – Consumers are overestimating the necessary credit score for a mortgage. 67% of the survey respondents said they needed to have a "very good credit score" to qualify for a mortgage loan, but 45% of respondents considered a good credit score to be "over 780." Under the FICO system, a score of 660 is a reasonably good score, and FHA loans can be acquired with scores of 580 and potentially below.
- Down Payment – 20% of the purchase price has always been the standard down payment to receive the best interest rate, but even after the pullback of the housing crisis, loans with 3% down are available to qualifying buyers. The survey shows that 36% of Americans believe that a 20% down payment is always required, with more than half of African-Americans and Hispanics holding that belief. Further, 20% of all respondents and over one-third of minority respondents believe that parents and relatives cannot contribute to the down payment.
- Types of Mortgages – Fewer respondents recognize the variety of mortgages that are available, and thus may be focused only on conventional loans. Familiarity with various types of loans dropped anywhere from 2% to 17%.
In a way, it is not surprising that these misconceptions are in place. For years after the housing crisis, media stories focused on the Dodd-Frank legislative reform and the backlash by banks. Stories highlighted how the pendulum was swinging away from riskier loans and towards 20% down payment standards and threshold credit scores in the 700s. Even consumers who kept up with the news can be partially excused for thinking loan requirements are stricter than they really are.
The survey highlights one major point: economic conditions are important to a housing recovery, but education for potential new homebuyers cannot be ignored.