Consumers Don’t Understand Mortgage Qualifications

Although credit standards are easing, job markets are improving, and consumers continue to show the desire to own a home, actual homeownership remains at a low level across the nation.

So why are consumers not capitalizing on the positive economic conditions the mortgage industry has been experiencing?

Fannie Mae’s Economic & Strategic Research Group determined in the recent survey of 3,868 consumers that they just are not knowledgeable about the mortgage qualification process.

"Advancing from aspiration to sustainable homeownership is more likely to occur if consumers have an accurate understanding of the requirements to qualify for a mortgage," Fannie Mae stated in the report. "While it can take years to improve one’s credit score or save for a down payment, undertaking such efforts based on inaccurate information may lead to a needless delay in reaching the goal of owning a home."

The survey showed that consumers lack a basic understanding of minimum mortgage qualification requirements among all consumers, but especially renters that want to buy a home in the next five years.

When questioned about mortgage criteria such as down payment, credit score, and debt-to-income ratio, about half of those surveyed could not provide an answer, while only 23 percent are aware of the 3 percent and 5 percent down payment programs.

Consumers do appear to check their credit score, with 80 percent of consumers indicating that they have seen their credit score, but 49 percent do not know what their score is or give a number outside of the scoring range.

Survey results found that consumers do believe that lenders are the "most influential" source of information for obtaining mortgage advice, followed by family and friends.

"Lenders are in a vital position to help close consumers’ knowledge gap of what is required in today’s mortgage market to successfully obtain mortgage credit," Fannie Mae concluded. "Our results also suggest opportunities to partner with Realtors, counselors, and other groups to help minority consumers build knowledge in the early stages of buying a home. Another element of good news is the large share of “don’t know” responses as it is easier to provide new knowledge than to reverse misperceptions."

Click here to view the full report.