Are Bad Assumptions Sidelining Homebuyers?
Jann Swanson | Mortgage News Daily | Jun 16 2014 | link
Do mortgage lenders and real estate agents need to form a “truth squad” to combat misconceptions about homeownership? Freddie Mac’s vice president and Head of Single Family Sales thinks so. Christina Boyle, writing in the company’s Executive Perspectives blog says consumer assumptions and bad information may be partially to blame for a lagging housing market recovery.
First, Boyle says, consumers persistently overestimate the size of the down payment they need to buy a home. She quotes a recent survey of renters or people living in someone else’s home that was conducted in New York by Zelman & Associates. It found a widespread assumption that lenders require equity of 11 to 15 percent! Many of the respondents were in their prime homebuying years and of those in the 25 to 34 year old age groups 38 percent said lenders demand minimum down payments of 15 percent. Boyle points out that in fact it is possible to buy with as little as 3 to 5 percent and Freddie Mac’s purchase of mortgages with less than 10 percent equity more than quadrupled between 2009 and 2013. So far this year more than one in five borrowers who took out conforming, conventional mortgages put down 10 percent or less.
Zelman also reported that “only 28 percent (of all respondents) were optimistic that they could qualify for a mortgage. This includes 30 percent of 25-29 year olds and 40 percent of 30-34 year olds.” That would mean 60 to 72 percent of the traditional “first-time” homebuyer demographic may be underestimating their potential for getting a conforming, conventional mortgage with a low down payment.