Homeownership Rate Remains Low – It might start with the mortgage

Monday, July 4th, 2016 and is filed under Financing / Mortgage


The homeownership rate remains low, especially in the face of easing credit standards and an improving economy. It’s been commonly acknowledged that several reasons for this trend include the struggle to save for down payments and lower credit scores (mainly due to student debt).

Another important reason could be general ignorance involved with actually applying and being approved for a mortgage.

To better understand if lack of knowledge might be a factor in the homeownership rate, the Federal National Mortgage Association (Fannie Mae) conducted an online study among 3,868 adults age 18 and over. (1) The survey focused on participants’ understanding of specific mortgage criteria, including down payments, credit scores and debt-to-income ratios. The sample included a high number of African-Americans, Hispanics and Asian-Americans, in an attempt to better study these subgroups.

The results were somewhat surprising in that approximately half of all survey participants were unable to provide answers to questions about down payments, credit scores and debt-to-income ratios. Furthermore, only 23% of the total sample were aware of 3% and 5% down-payment programs.

And when it came to perceptions of what lenders expected in terms of a down payment, a large part of the sample believed that 20% down was necessary to buy a house, while a whopping 39% of those surveyed didn’t know.

Perceived Minimum Downpayment Required by Lenders - Chart

Other results noted that:

  • Four in 10 respondents believed it would be difficult to obtain a mortgage.
  • The most common reasons cited for difficulty in obtaining a mortgage included insufficient income, low credit scores, too much existing debt, and not being able to afford the down payment or closing costs.
  • About half of the respondents didn’t know what their credit score was, or mentioned a number outside the score range.
  • The participants believed, on average, that a credit score of 652 was necessary to qualify for a mortgage, much higher than Fannie Mae’s score of 620.

Fannie Mae suggested that additional educational efforts about underwriting factors might be helpful in mitigating the lack of knowledge about mortgage qualifications.

Other suggestions included:

  • Partnering with government agencies or public figures to help build consumer knowledge about mortgages.
  • Enlisting the help of real estate agents in educating consumers about the mortgage qualification process.
  • Working with online home search providers, such as Zillow, to provide more information about mortgage qualifications.
  • Using mobile technology (smartphones and tablets) as mortgage educational tools.

Though other factors are certainly responsible for the sluggish home ownership rate, a better understanding of how to obtain a mortgage could help some potential homebuyers feel less intimidated about the process.

(1) Fannie Mae Economic & Strategic Research Group, 2015. What Do Consumers Know about the Mortgage Qualification Criteria?. [Online]
Available at: http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/consumer-study-121015.pdf
[Accessed 4 March 2016].