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August 29, 2016

How Your Clients Misunderstand Mortgages

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How Your Clients Misunderstand Mortgages

Americans significantly lack understanding about minimum mortgage qualification criteria, particularly renters who plan to buy a home within the next five years, according to a survey of 3,868 consumers by Fannie Mae's Economic & Strategic Research Group.

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When asked about key mortgage qualification criteria — down-payment percentages, borrower's credit scores, and debt-to-income ratios — about half of consumers answered with "don't know" or failed to provide a valid answer, according to the survey.

For those consumers who did provide an answer, many respondents thought the requirement for a minimum down payment was four times larger than Fannie Mae's actual figure of 3 percent. When it came to minimum credit scores, many thought the requirement was 652 — when in actuality, Fannie Mae's requirement is 620.

The survey also showed, not surprisingly, that consumers cite lenders as one of the most influential sources of mortgage information, but real estate professionals follow closely behind along with family and friends.

Prior Fannie Mae surveys have shown that "the aspiration to own a home remains strong and that consumers perceive the down payment and their credit scores as leading obstacles to obtaining a mortgage," notes Mark Palim, Fannie Mae's vice president of Applied Economic and Housing Research. "Advancing from aspiration to sustainable home ownership is more likely to occur if consumers have an accurate understanding of the requirements to qualify for a mortgage. 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."

Source: “Survey Reveals Significant Gaps in Consumer Knowledge of the Requirements to Qualify for a Mortgage,” Fannie Mae (Dec. 10, 2015)