Misperceptions and mysteries surrounding mortgages are preventing some potential homebuyers from pursuing financing, according to a new survey.
Nearly half (46%) of prospective homebuyers have not pursued the financing they would need in order to buy a home due to fear they wouldn’t qualify for a mortgage, found retail home loan lender loanDepot LLC in a national consumer survey.
Nearly three in 10 (29%) of Americans surveyed said they’d like to buy a home in the next two years. While 42% of Americans don’t currently own a home, there’s demand among current homeowners as well, as 20% said they’d like to buy another home in the next 24 months.
However, more than half (56%) of all buyers who don’t currently own a home, but want to, indicated they’re not pursuing homeownership because they fear they won’t qualify for a loan, loanDepot found, along with 30% of current homeowners interested in buying another house.
“We’re well into this year’s home buying season and too many potential buyers and sellers are sitting on the sidelines because they’re afraid they can’t qualify for a home loan before they’ve looked into it,” said loanDepot President and COO, Dave Norris.
One reason potential buyers aren’t looking into financing options is because they overestimate how hard it is to get a mortgage and don’t think their FICO score is high enough.
“While market and regulatory conditions have made it harder for many borrowers to secure a loan, consumer lending is beginning to loosen up for mortgage borrowers including those with less than perfect credit,” Norris said.
More than four in 10 (43%) of those surveyed believe it’s harder to get a mortgage today compared to a year ago. Of those who want to buy a home but haven’t tried to because they think they won’t qualify, 53% think today’s qualification environment is tougher than last year.
“The reality however is that more applications are being approved today compared to a year ago,” says loanDepot. In fact, the average mortgage application approval rate was 55.3% in February 2014, according to the Ellie Mae Origination Insight Report, compared to 49% in 2012.
Half of Americans don’t know the minimum FICO score necessary to qualify for most mortgages, and only 42% knew it was lower than 680 for most loans.
While 18% believe they’d need a minimum score of 680-770 or better to qualify, a third of all closed loans in February 2014 had an average FICO score of less than 700. In comparison, less than a quarter (24%) of closed loans had scores beneath 700 one year ago.
The median FICO score for all approved borrowers in the United States has fallen from 750 in October 2012 to 724 in January 2014, says loanDepot.
“Potential buyers are forfeiting their dreams of homeownership before they find out what financing options are available to them,” said Norris. “They may be better than most people think.”
Written by Alyssa Gerace