Current economic conditions might indicate it is a good time to get into the housing market, but many potential homeowners appear to have some serious misconceptions about what it takes to do so.
Fannie Mae conducted a nationwide study among 3,000 respondents to track trends among consumers’ understanding of mortgage qualification requirements, and found that the majority of people think it is harder to qualify for a mortgage than it really is.
According to the findings, people overestimate the minimum credit score necessary to qualify for a mortgage. While the actual minimum FICO score is about 580 – which only 11 percent of respondents correctly identified – people thought it was 650. More than four-in-ten people did not know what their own credit score was.
People also overestimated the minimum down payment to qualify for a mortgage, which is about 3 percent. Most people said 10 percent. Further, Americans are generally unfamiliar with low down payment programs – only 23 percent of people knew about the option.
Sixty percent of people, overall, thought getting a mortgage would be easy. More current homeowners (78 percent) were confident when compared with renters (33 percent).
The survey found, however, that even those who should be more knowledgeable about mortgage requirements – including current homeowners – are not. For example, while 9 percent of renters identified the correct credit score range needed to qualify for a mortgage, only 12 percent of owners were able to do so.
The top reasons people expect to have difficulty getting a mortgage are insufficient income to afford monthly payments, too much debt and insufficient credit score or credit history.
“For some Americans who would like to own a home, they could qualify for a mortgage but may assume homeownership is not a possibility,” researchers concluded.
Meanwhile, conditions appear to be ripe for homebuyers. Mortgage application volume increased 1.5 percent for the week ending May 31 – after falling the week prior, according to the Mortgage Bankers Association’s survey. Meanwhile, mortgage rates recently fell to their lowest level since the first week of 2018 amid rising concerns over trade tensions.
Digital Risk co-founder Jeff Taylor told FOX Business on Monday that for those looking to get into the housing market, “this is literally the perfect time.”
Meanwhile, many expect the Federal Reserve may cut interest rates this year, which could further benefit potential homebuyers.