Three in 4 Americans are planning to buy the next time they move, but many are overestimating minimum down payment, credit score underwriting requirements, according to a new Fannie Mae study.
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High mortgage rates and home prices have made consumers “extremely pessimistic” about homebuying conditions, but three out of four people surveyed by Fannie Mae say they’re more likely to buy then rent the next time they move.
While 92 percent of consumers in Fannie Mae’s survey of 3,338 household financial decision makers said owning a home is important and 74 percent were planning to buy the next time they move, many were a little fuzzy about mortgage requirements.
Nine out of 10 consumers overstated or didn’t know the minimum down payment required for most mortgages, and many were also confused about underwriting criteria like minimum credit scores and maximum debt-to-income ratios, the 92-page Fannie Mae Mortgage Understanding Study found.
“We think these survey findings have important implications for the entire mortgage industry – and serve as a call to action to help bridge consumer knowledge gaps through education and outreach,” Fannie Mae said in releasing the study Monday.
Why consumers think it’s a bad time to buy a house
Home prices have soared since Fannie Mae last conducted the survey in 2018. But among the 78 percent of consumers surveyed in December who said it was a bad time to buy a home, mortgage rates were the primary concern.
Unfavorable mortgage rates were cited as the primary concern for 37 percent of those who thought December was a “somewhat bad” or “very bad” time to buy, up from 7 percent in 2018.
Although 35 percent cited high home prices as their biggest concern, that’s down from 57 percent in 2018.
Consumers were also less likely to say that the difficulty of qualifying for a mortgage (3 percent) or the lack of listings (3 percent) were their primary concern.
3 in 4 households plan to buy rather than rent next time they move
Despite concerns about the housing market or their own finances, only 26 percent of those surveyed by Fannie Mae plan to be renters the next time they move. Close to half of those who are currently renting (43 percent) plan to buy a home.
Among the 25 percent who are actively planning to buy a home in the next 3 years, 50 percent are renters, and more than three-quarters of that group have never owned a home.
Most who plan to buy have saved for a down payment
Close to three-quarters of people who were actively planning to buy a home had at least something saved up for a down payment.
But many may not realize that they may already have set enough aside to buy a home.
While mortgages backed by Fannie Mae and Freddie Mac allow homebuyers to put as little as 3 percent down, only 24 percent of consumers knew that fact. The rest either thought it was higher (10 percent was the median response) or didn’t know (29 percent).
Fannie and Freddie allow lenders to provide mortgages to borrowers with FICO scores as low as 620, but close to one-third of consumers thought they’d need a credit score of at least 700 to qualify for a mortgage.
The good news was 93 percent of household financial decision makers have seen their credit score at least once, up from 87 percent in 2018 and 82 percent in 2015, and 83 percent were confident that they could improve it.
Growing awareness of low down payment loan programs
Consumers are increasingly aware of low down payment loan programs, with close to one-third (32 percent) saying they were “somewhat” or “very familiar” with such programs, up from 23 percent in 2018. Active home shoppers were much more likely to be aware of such programs (42 percent) compared to renters (29 percent).
Although websites were the most often cited sources of information about mortgages (50 percent), consumers also relied heavily on mortgage loan professionals (48 percent) and real estate agents (40 percent).
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