With millions of Americans working at home due to COVID-19, many renters and homeowners are thinking about moving to larger homes with more amenities, including dedicated office space and exercise equipment.
With a limited supply of homes for sale due to years of underbuilding, today’s housing market is highly competitive — making it more important than ever to dispel the mortgage-related myths that are keeping some potential homebuyers on the sidelines and leading others to miss out on opportunities to buy a great home.
Whether you’re speaking with customers one-on-one or via social media, we’ve identified five misconceptions held by a surprising number of potential borrowers.
First, borrowers aren’t required to put 20% down when the lender is protected against the risk of default by mortgage insurance. It’s hard to understand why this myth persists in an age of instant information, but more than one in four potential homebuyers believe lenders require a down payment of 20%, according to Bankrate.com.
Because this misconception leads many potential homebuyers to put off a purchase, it’s important to periodically reinforce the message that down payments by first-time borrowers average about 6%, according to the National Association of Realtors®.
With demand rising, this is good time for mortgage professionals to dispel the mortgage misconceptions that can make it more challenging for homebuyers to find and successfully purchase a home in a competitive market.
You can help homebuyers understand mortgage requirements — and down payment options for qualified buyers — with Arch MI’s Roadmap to Homeownership, a complete buyer education toolkit. It’s easy to add your company’s logo to our complimentary homebuyer education presentation and share it with borrowers in person or via low-cost videoconferencing apps.
Another widely held misconception has to do with rising home prices. Affordability remains high compared to historic norms. Prices have risen steadily over more than a decade, but with historically low interest rates, the percentage of median income needed for monthly payments on a median-priced home is 30% (as of March 2020) vs. 41% in 2006 (when mortgage rates were roughly twice as high at 6%), according to Arch MI’s most recent Housing and Mortgage Market Review® (HaMMRSM).
Getting pre-qualified is not the same as getting pre-approved: Homebuyers see countless online ads promising they can be “pre-qualified for a mortgage in minutes.” The sheer number of these ads — and their confusing claims — make it important for your borrowers to know the difference between pre-qualifying and pre-approval for a mortgage.
Of course, the pre-approval process is far more thorough and requires more information from the borrowers to allow lenders to determine the mortgage amount the borrowers qualify for. Pre-approvals are especially important in the current environment because an increasing number of sellers are only opening their homes to buyers who have been pre-approved for a mortgage.
It’s clearly a seller’s market in much of the country, and it’s understandable why some families want to limit visits by potential buyers in homes that now serve as hubs for work and school as well as daily living. Helping buyers understand the importance of a pre-approval can help avoid disappointment and delays.
It’s not always less expensive to rent. The cost of renting vs. buying varies across the country. Earlier this year, a CNBC report concluded it’s less expensive to own a home compared to renting in 24 of the 50 largest metro areas.*
In addition, buy vs. rent calculations rarely factor in benefits like tax savings through the mortgage interest deduction and the ability to build equity as a borrower pays down the mortgage. Homebuyers may also benefit from a fixed monthly payment over the life of their mortgage and once the mortgage is paid off, a home often becomes the buyer’s most important financial asset.
There are also hard-to-measure benefits like the freedom to customize your home’s features and décor to suit your lifestyle. Since COVID-19 may have changed the calculus in some markets, it’s worth revisiting the buy vs. rent comparison on a regular basis.
Finally, you should let your customers know that shopping around for rates WON’T hurt a borrower’s credit score. While it’s true that multiple inquiries can lower a borrower’s score, not all inquiries are created equal. FICO® allows for rate shopping by counting all similar inquiries made within the same 30-day period as one. This means you can encourage your borrower to compare your rates to other lenders as long as it all happens within 30 calendar days.
Help us continue this conversation by sending us an email to share your success stories in addressing homebuyer misconceptions and how the discussions started one of your customers on the path to a new home.
* Arch MI’s Rent vs. Own comparison flyer: Lender and CU version