Good news: Misconceptions, not credit, keep homebuyers out of market
Wells Fargo’s Franklin Codel recaps its latest homeownership survey and how myths about down payments and credit scores keep some qualified home buyers sidelined.
A lot has changed since I started my career in the mortgage industry more than 25 years ago. But owning a home remains a vital part of the American dream and of the strength of our communities, economy, and nation.
Those sentiments were confirmed again by our second annual Wells Fargo Homeownership Survey,* which found that most Americans agree now is a good time to buy a home. That’s the good news.
The not-so-good? Misconceptions remain that are holding many potential buyers back, including the two biggest obstacles:
- The mistaken belief that credit scores alone determine eligibility for a home loan.
- The mistaken belief that buyers need at least a 20 percent down payment.
These persist despite efforts by lenders and the government to make credit for mortgages more available and to introduce low down payment programs. We believe these misconceptions can be overcome with a better understanding of how credit works.
Beyond the credit score
Creditworthiness is not determined based on a single factor, so it’s important for potential homebuyers to investigate home financing options before excluding themselves based on credit scores alone. A good lender will use a borrower’s entire financial picture, not just credit score, when deciding whether to lend.
In addition, many borrowers overestimate what is truly a “good credit score” and think it should be above 780. In reality, while there are multiple credit score models and investor guidelines, a score higher than 780 is generally considered “excellent,” and more than 660 is generally considered “good.”
The legend of the 20 percent down payment
Surprisingly, many people still believe a 20 percent down payment is required to get a home. The fact is, there are other options that some borrowers may be eligible for, including programs with down payments as low as 3 percent.
The important thing here is to do your homework. Have a good understanding of what you can afford and find a lender that will look at your full financial picture and help you understand the options available to you.
High tech with a human touch
One other interesting finding in this year’s survey was that consumers are increasingly looking for digital options. Many potential homebuyers prefer doing online research before they talk to a mortgage lender or a bank, or even before consulting family or friends.
But, when they are ready to apply, most consumers want high-tech tools and a human touch. That makes it even more important to choose a lender that can provide the convenience of online tools like yourLoan TrackerSM, as well as personal guidance from local professionals, like Wells Fargo’s 7,500-plus home mortgage consultants.
Of course, these are only starting points. More than anything, it’s important for consumers to educate themselves so they can make informed choices.
I’m personally inspired by what consumers told us in the survey. It tells us that homeownership is a vital part of the American dream, and it gives us insight into how we can help customers achieve financial success. It also reinforces that, while the housing industry has changed, the importance of homeownership in America has not.
Have a story about your personal journey to homeownership? Use the “Leave a comment” feature below to share your ideas.
*National survey of 2,016 respondents conducted online between April 8–15, 2015, for Wells Fargo. The sample includes 1,924 respondents who either own or rent a home.