Mortgage

Wells Fargo: Most potential homebuyers don’t understand mortgages

Turns out…Millennials are not alone in unawareness

Homeownership has been, and continues to be, part of the America dream. The problem is that no one truly understands how to get there.

Wells Fargo (WFC) and Ipsos Public’s second annual “How America Views Homeownership” survey echoes similar industry reports: American’s don’t understand housing. 

Wells Fargo surveyed 2,016 adults living in the United States who were interviewed online. 

According to the survey’s finding, 65% of respondents feel homeownership is a dream come true or an accomplishment to be proud of, and 72% think now is a good time to buy.

However, consumer beliefs on what they can and can’t afford is completely off base.

Two-thirds believe they need a very good credit score to buy a home, with 45% thinking a “good credit score” is over 780.

The survey explained that with multiple credit score models and investor guidelines, a score of over 780 is generally considered “excellent,” and over 660 is considered “good.”

Additionally, consumers also overestimate the down payment funds needed to qualify for a home loan, with 36% thinking a 20% down payment is always required.

Chase also recently surveyed 1,098 Americans with a qualifying age of 25-65, with a 500-respondent oversample among those who intend to buy a home within the next 18 months.

In Chase’s finding, it reported that 42% of homebuyers say they are not at all concerned about having a lack of understanding about the mortgage process.

But the Chase survey also found that across all adult age brackets, more than one-third of potential homeowners are "Not Very" or "Not At All" aware of closing costs.

What’s worse is that they don’t understand how unaware they are. Looking at the misconceptions of the homebuying process cited above, the Wells Fargo survey still found that 80% say they know and understand the financial process involved in purchasing a home.

And it’s worse for Millennials, who are less knowledgeable than the general population (69% of Millennials compared to 80% of the general population).

Millennial knowledge is improving though. Millennials’ reported knowledge has increased, with 69% saying that they know and understand the financial process involved in purchasing a home, up from 61% among the same age group last year.

So what should the industry do?

“Creditworthiness isn’t determined based on a single factor, so potential homebuyers should find out what options may be available before excluding themselves based on credit score alone,” said Franklin Codel, head of mortgage production for Wells Fargo Home Mortgage. 

 “Wells Fargo considers a loan applicant’s entire financial picture, including income, assets, debt-to-income ratio, credit history, credit scores, and the amount of the loan compared to the value of the property,” Codel continued.

In a recent interview with Navy Federal Credit Union’s Vice President of Mortgage Lending, Katie Miller, she encouraged potential homebuyers to take the first step of talking to their lenders and getting educated.

She said that the biggest hurdle for first-time buyers is lack of a substantial down payment. But that's a problem that a conversation with a loan officer could potentially solve.

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