Fear of Rejection Drives Almost Half Of Today's Potential Homebuyers Away From Housing Market
loanDepot Survey Finds Pent Up Demand Overshadowed by Fear and Mortgage Misperceptions
Apr 22, 2014
Irvine, CA - April 22 2014
Fear they will not qualify for a mortgage has stopped nearly half (46%) of today's potential home buyers from pursuing the financing they need to buy a home, according to a new national consumer survey from loanDepot, the nation's third largest private, independent retail home loan lender.
While strong pent up demand to buy a home exists among a broad national cross section of the population, very few prospective buyers have actually taken any steps to see if they'll qualify for a home loan.
- One in three Americans (29%) say they'd like to buy a home in the next two years and forty-two percent of all Americans don't own a home today. One in five (20%) who already own a home say they'd like to buy another home in the next 24 months - either a new primary residence, investment home, retirement home or vacation home. In February 2014, second homes accounted for 20 percent of all home sales.i
- Just over half (56%) of all buyers who don't own a home today but want to say they're not pursuing it because they fear they won't qualify for a loan. The same is true for one-third (30%) of those who already own a home and want to buy another in the next two years.
- While 71 percent of all Americans who want to buy a home in the next two years will need financing, 89 percent haven't actually taken any steps to see if they could get a home loan. Specifically, three quarters (74%) of people who want to buy a home but fear they won't qualify for a mortgage admit they haven't taken any steps to qualify. Only 27 percent have actually taken steps to see if they can qualify.
"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. "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. Potential buyers are forfeiting their dreams of homeownership before they find out what financing options are available to them. It's never been easier than it is today to go online and research your options on a site like loanDepot. They may be better than most people think."
Mortgage Mysteries and Misperceptions
The loanDepot survey also found most potential homeowners overestimate how hard it is to get a mortgage, which may be discouraging them from exploring their financing options. Only 18 percent of all Americans believe it's easier to get a mortgage today compared to a year ago, while 43 percent say it's harder.
- Of the potential homeowners who want to buy a home but aren't pursuing it because they fear they won't qualify, half (53%) think it's harder to get a loan today compared to a year ago. The reality however is that more applications are being approved today compared to a year ago. The February 2014 Ellie Mae Origination Insight Report found that today's average mortgage application approval rate is 55.3 percent compared to 49 percent in 2012.ii
- FICO scores also remain a mystery to most Americans, especially among potential buyers who say they'd like to buy a home in the next two years. Half (50%) of all Americans don't know what minimum FICO score is required to qualify for most loans, while 18 percent think they need a minimum FICO score of 680 to 770+ to qualify. In reality, 33 percent of all closed loans in Feb 2014 had an average FICO score of less than 700 compared to 24 percent one year ago.iii
- Two in five (40%) of those who want to buy a home but won't pursue it because they don't know if they'll qualify don't actually know what the lowest FICO score is today to qualify for most loans. Only two out of five (42%) knew that it was lower than 680 for most loans while 24 percent of respondents thought their FICO score was too low to qualify for any loan.
The median FICO score for all approved borrowers in the United States has fallen from 750 in October 2012 to 724 in January 2014.iv The average FICO score among loanDepot purchase borrowers in the first quarter of 2014 was 714.
DTI... More Than an Acronym
Just as they underestimate their credit scores, many potential buyers overestimate the impact their debt compared to income (DTI) has on their credit worthiness. Of those who want to buy but have given up, almost a third (34%) say their DTI is too high while 24 percent say it's lower than what is needed. By comparison, 15 percent of those who want to buy a home but are not concerned about qualifying for a loan say that their debt is too high. In fact, industry reports show many mortgage lenders have relaxed their debt to income requirements, and DTI ratios have risen from an average of 34 percent to 39 percent for back end ratios in the past year.v LoanDepot's average DTI for purchase loans was 39 for back end ratios during the first quarter of this year.
Fears Freeze First-Time Buyers
According to the loanDepot survey, fear of being unable to qualify for a loan is keeping a greater number of younger buyers on the sidelines of the housing market than any other age group. Half (48%) of all potential homebuyers who don't own a home today are ages 25 to 34, of which many are potential first-time buyers whose median age is 31.viThe market share of first-time buyers has declined from 54 percent of all sales in March 2009 to 28 percent in February 2014.vii
"Our loanDepot survey confirms uncertainty and confusion about qualifying for a loan are driving more young potential buyers away from homeownership than any other age group. However, their uncertainties and fears may be much worse than reality. Growing the first-time homebuyer market share may be as simple as going online and exploring the options." said Norris.
To help potential homebuyers overcome the uncertainties sometimes associated with the home financing process, loanDepot recently introduced the Purchase Advantage Prequalification program. With a simple phone call to a licensed loanDepot mortgage banker, consumers can quickly establish their purchasing power and financing options so shopping for a home becomes an easier and less stressful experience. There is no cost to participate in loanDepot's Purchase Advantage Prequalification program, and pre-qualification certificates once issued are valid for 90 days. For more information about the Purchase Advantage Prequalification program, visit loanDepot.com or call a licensed loanDepot mortgage banker at 888.337.6888.
About The Survey
The survey was conducted by OmniTel, the weekly national RDD Probability Dual Frame Sample (landline and cell telephone) omnibus service of GfK Custom Research North America. It is based on interviews conducted March 21-23, 2014. The OmniTel study consist of 1,005 completed interviews, made up of male and female adults (in approximately equal number), all 18 years of age and over. The margin of error on weighted data is +/- 3 percentage points and higher for subgroups. The raw data are weighted by a custom designed computer program, which automatically develops a weighting factor for each respondent. This procedure employs five variables: age, sex, education, race and geographic region. Each interview is assigned a single weight derived from the relationship between the actual proportion of the population with its combination of age, sex, education, race and geographic characteristics and the proportion in our sample.
Launched in 2010, loanDepot LLC, is one of the fastest growing independent mortgage lenders in the nation. loanDepot LLC operates under the brand names of www.loanDepot.com and imortgage, and maintains dual corporate headquarters in Foothill Ranch, CA and Plano, TX. loanDepot generates loan production from four web centers and operates 60 imortgage branch locations throughout the nation. loanDepot is licensed in all 50 states and employs 2500 people across the country that includes 800 licensed mortgage bankers. loanDepot and is an approved seller and servicer for Fannie Mae, Freddie Mac and Ginnie Mae. www.loanDepot.com, LLC, NMLS # 174457 Learn more atwww.loanDepot.com.
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