Home Buyer Reality Report 2017

Buying a home — and finding the right mortgage — is a journey that can test your grit and resolve. If you haven’t done the proper research and you don’t know what to expect from the process, it can be even more stressful. Your credit history, income, assets and savings will be under scrutiny, and what you don’t know about mortgages can hurt you.

To better understand the psychology of the home-buying experience, NerdWallet conducted its first Home Buyer Reality Report. The study analyzes each step of the journey to homeownership, from home shopping through the lending process. It looks at the roadblocks to mortgage preapproval, why some borrowers never make it to the closing table and why others have regrets even after they become homeowners.

"According to our research, borrowers who don't understand the mortgage process or don't know enough about their own credit history tend to hit obstacles or be rejected when applying for mortgages," says Tim Manni, mortgage expert at NerdWallet.

“They also tend to feel regret after their deal is done, even if they succeeded in buying a home," Manni adds. "That tells me borrowers aren’t doing enough research — on themselves or the mortgage process — before applying for a home loan."

Nearly half of American homeowners in our survey (49%) said they would do something differently if they were to go through the home-buying process again. But we found distinct differences in home-buying attitudes and trends between millennials (ages 18-34), Gen Xers (35-54) and baby boomers (55+). The report, based on a survey of more than 2,200 people, about 1,300 of whom have applied for a mortgage and more than 1,400 of whom are current homeowners, was commissioned by NerdWallet and conducted online by Harris Poll.

Key findings

• 41% of Americans who have applied for a mortgage felt they were not aware of all of their loan options during the lending process.

• Among mortgage applicants [1], 28% said they felt they weren’t a priority to their mortgage professional during the loan process.

• 6% of mortgage applicants reported that they had been denied a mortgage. Of those who have been denied [2], more than half (52%) said they had a high debt-to-income ratio, 39% said they had issues with credit history or score, and 25% said they had insufficient income.

• Many American homeowners said the home-buying process was: stressful (42%), complicated (32%) and intimidating (21%), yet 41% said it was manageable and 30% even said it was rewarding.

• Among homeowners, 27% of millennials reported borrowing at a mortgage rate they thought they could afford when they purchased their current home.

• 11% of millennial homeowners said they no longer felt financially secure after purchasing their home.

• Gen X mortgage applicants were less likely to report having a positive experience (26%) with the mortgage process than millennial applicants (39%), but even though there was a difference in experience, Gen Xers were just as likely to have been approved for a home loan (91%) as millennials (89%).

• Millennials (25%) and Gen X (20%) mortgage applicants were twice as likely to have been approved for a mortgage at a higher interest rate than expected in comparison to baby boomers (10%).

• If they were to go through the home-buying process again, nearly half of American homeowners (49%) would do something differently.

• Roughly 3 in 5 millennial (57%) and Gen X (61%) homeowners indicated they had regrets, saying they would do things differently the next time around in the home-buying process, in comparison to only 38% of baby boomers.

The loan process

According to the U.S. Census Bureau, 63.5% of Americans own a home, which translates to 74.3 million households. According to our survey, more than half (58%) of Americans had applied for a mortgage. Married adults (80%) were much more likely to apply for a mortgage than unmarried adults (37%).

Among mortgage applicants, 89% had been approved for a home loan. Married applicants were more likely to have been approved (92%) than unmarried applicants (84%).

In examining loan type, 43% of Americans applied for a conventional loan compared to 19% who applied for a government-backed loan, such as those offered by the Federal Housing Administration, the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture.

While the majority (80%) of mortgage applicants said their mortgage professional got them through the loan process without delays, 28% of mortgage applicants felt they weren’t a priority to their mortgage professional.

Forty percent of mortgage applicants said their mortgage process was manageable, but 31% said it was stressful.

Millennials

Millennials are facing a number of factors — rising mortgage rates and home prices, low cash savings, student loan debt and more — that likely impact their ability to buy a home. In fact, 65% of millennials in our survey reported that they’ve never applied for a mortgage.

But among those who had applied, we found that 64% of millennial mortgage applicants would prefer to submit an application online instead of in person, by contrast with almost half (49%) of mortgage applicants in our study overall.

Additionally, millennial mortgage applicants reported feeling more comfortable applying for a loan through an alternative mortgage lender (62%) in comparison to baby boomers (38%).

Millennials were somewhat split when applying for a specific type of mortgage. Twenty-two percent of millennials applied for a conventional loan, while 14% applied for a government-backed loan.

Fifty-two percent of millennial mortgage applicants had applied for a home loan through a national bank, and millennials were more likely to choose a local credit union as their mortgage lender (29%) in comparison to Gen X applicants (14%) and baby boomer applicants (12%).

Millennial mortgage applicants were more likely to report having a “positive” experience when it came to the mortgage process in comparison to the other generations — 39% of millennial mortgage applicants called it positive, 41% manageable, 40% organized and 32% easy.

While 85% of millennial mortgage applicants feel that their mortgage professional was able to get them through the loan process without delays, 36% felt they weren’t a priority to their mortgage professional — higher in comparison to baby boomers (21%).

GEN X

More than half (57%) of Gen Xers have applied for a mortgage; 40% applied for a conventional loan, while 19% applied for a government-backed loan. Yet, much like millennials, 57% of Gen X mortgage applicants reported feeling comfortable using an alternative mortgage lender.

More than half of Gen X mortgage applicants (52%) say they applied to a national bank mortgage lender, while 16% went through an alternative lender — higher than baby boomers (10%).

Gen X mortgage applicants had a high mortgage approval percentage (91%). Twenty-two percent of Gen X mortgage applicants were approved for a loan at an interest rate lower than they had expected, and 20% were approved for a loan at a higher rate than expected, twice the rate of baby boomers (10%). Most Gen X mortgage applicants (59%) said they have been approved for a mortgage at the rate they expected.

Similar to millennials, 63% of Gen X mortgage applicants would prefer to apply online versus in person. Gen Xers were less likely than millennials to report having a positive experience during the mortgage process (26%), and many described their experiences in a negative way: 39% called it stressful, 31% said it was complicated, 28% called it frustrating, and 12% felt it was unclear.

While 75% of Gen X mortgage applicants said their mortgage professional was able to get them through the loan process without delays, 35% felt they were not a priority to their mortgage professional.

Twenty-one percent of Gen X homeowners were surprised by how long the home-buying process took, 17% felt it was complex, and 13% said they had sticker shock from the closing costs.

Baby boomers

A majority (74%) of baby boomers had applied for a mortgage in their lifetime. More than twice (59%) the number of baby boomers applied for a conventional loan in comparison to 24% who applied for a government-backed loan.

Among mortgage applicants, 47% of baby boomers submitted a mortgage application to a national bank lender, and nearly a quarter of boomers submitted a mortgage application through a regional bank (22%) and a local community bank (23%).

Of those who had applied for a mortgage, 89% of baby boomers had been approved for a home loan. In fact, baby boomers reported having the highest level of approvals at the mortgage rate they expected (73%) compared to other generations. Millennial (25%) and Gen X (20%) mortgage applicants, however, were twice as likely to receive a higher mortgage rate than expected in comparison to baby boomers (10%).

A far lower percentage of baby boomer applicants (34%) said they’d prefer to apply for a mortgage online — rather than in person — than did millennials (64%) and Gen Xers (63%). Baby boomers were also more likely to say they wouldn’t feel comfortable using an alternative mortgage lender (62%) compared to millennials (38%) and Gen Xers (43%).

That may be why many of them indicated confidence in their lending professionals, with 81% of baby boomer mortgage applicants saying their mortgage professional got them through the loan process without delays, and 79% feeling they were a priority to their mortgage professional.

Similar to other generations, baby boomer mortgage applicants said the mortgage process was stressful (25%), yet manageable (42%). In fact, more than half of baby boomer mortgage applicants (65%) felt they were aware of all their options during the mortgage process.

Among baby boomer mortgage applicants who were approved for a mortgage, 97% reported moving forward with the process (going through with getting the loan), which was the highest of all the generations.

Affordability

Of homeowners, 36% of Americans reported that they took out a mortgage and purchased a home at a rate they thought they could afford. However, 9% said that after purchasing a home, they didn’t feel as financially secure as previously.

When it comes to qualifying for an affordable mortgage rate, 23% of mortgage applicants had been approved for a mortgage at a rate lower than they expected, while 16% received a rate higher than anticipated.

MILLENNIALS

Twenty-seven percent of millennial homeowners reported that they took out a mortgage at a rate they thought they could afford. However, after they purchased their home, 11% of millennial homeowners no longer felt as financially secure as they did before they bought a home.

GEN X

Like millennial homeowners, 34% of Gen X homeowners said they purchased a home with a mortgage rate they could afford. Twelve percent said they no longer felt financially secure after purchasing a home.

BABY BOOMERS

Forty-two percent of baby boomer homeowners reported that they took out a mortgage and purchased a home at a rate they thought they could afford, which is the highest among all generations. And only 6% reported not feeling financially secure after they purchased their current home.

The home-buying process

Buying a home can elicit mixed feelings along the way. Forty-two percent of American homeowners said they felt the overall home-buying process was stressful, 32% said it was complicated, and 21% said it was intimidating. However, 41% said it was manageable, and 30% even found it rewarding.

There were other bright spots: 32% said their real estate agent or mortgage broker (23%) made the home-buying process easy, and 29% said they received the best possible mortgage. Homeowners who are married were much more likely to say they received the best mortgage possible (36%) than those who are not married (20%).

MILLENNIALS

Among millennial homeowners, 46% reported the home-buying process was stressful, 35% called it complicated and 30% felt intimidated. On the other hand, 37% said it was manageable, 37% said it was rewarding, and 26% said it was even enjoyable.

Concerning the relationship with their real estate agent and mortgage broker, 31% of millennial homeowners said their real estate agent made the home-buying process easy, but only 18% said the same of their mortgage broker, which is far lower than among baby boomers (26%). Also, 25% of millennial homeowners felt they received the best possible mortgage.

Asked what surprised them most about the home-buying process, 19% of millennial homeowners said they were surprised by how long the entire process took, 16% were surprised by how complex it was and 15% were surprised by hidden fees. These types of surprises can also lead to buyer’s remorse.

GEN X

About half (51%) of Gen X homeowners said they felt the overall home-buying process was stressful, and many felt it was complicated (35%) and intimidating (23%), yet 35% found it manageable, rewarding (28%) and even enjoyable (19%).

Although home buying can be tricky, 32% of Gen X homeowners said their real estate agent made the process easy, and 25% reported receiving the best possible mortgage. So it’s no surprise that Gen Xers show commitment in getting to the finish line. Among Gen X mortgage applicants who were approved for a mortgage, 90% reported moving forward with the process. That figure was 97% for baby boomers and 89% for millennials.

BABY BOOMERS

Baby boomers’ experience seems to work in their favor, as 30% of baby boomer homeowners reported that nothing surprised them about the home-buying process.

When it comes to the ease of the home-buying process for their current home, roughly 3 in 10 baby boomer homeowners said their real estate agent (32%) or mortgage lender (26%) made the home-buying process easy, and 35% say they received the best possible mortgage — the highest of the three generations.

Baby boomer homeowners had a mix of feelings toward the home-buying process: 35% said it was stressful, 28% complicated and 16% intimidating. On the other hand, 46% said it was manageable, 28% rewarding and 15% even simple.

Roadblocks

Getting approved for a mortgage is rarely an easy leg of the home-buying journey. It comes with a close evaluation of your finances, income and assets, and many roadblocks can stand in the way of getting the home of your dreams.

Some of those roadblocks can include poor credit, lack of money saved for a down payment, an inconsistent income history, or simply not having the right guidance to get to the finish line. In fact, 41% of all mortgage applicants in our survey said they felt unaware of all of their loan options during the lending process.

MILLENNIALS

There’s a notable contrast between millennials and baby boomer mortgage applicants: 54% of millennials felt unaware of all of their loan options during the lending process compared with 35% of baby boomers and 44% of Gen Xers.

Among millennial mortgage applicants, 89% had been approved for a mortgage, and 89% moved forward with the process. The 11% who did not move forward is more than three times as among baby boomers (3%).

GEN X

Among Gen X mortgage applicants, 9% have been denied a mortgage. Among the 91% of Gen X mortgage applicants who have been approved for a mortgage, though, 90% moved forward with the loan process.

BABY BOOMERS

Just 2% of baby boomer mortgage applicants have been denied a loan, compared with 10% of millennial applicants and 9% of Gen X applicants.

Among the 89% of baby boomer mortgage applicants who have been approved for a mortgage, 97% moved forward with the loan process.

Homeowner regrets

Buyer’s remorse can haunt homeowners even after a deal is done. Nearly half (49%) of homeowners said they’d do something differently if they had to go through the home-buying process again.

Twenty percent wished they had saved more money before buying a home, 13% said they would do more research on the mortgage-lending process, 14% said they would have shopped around more for a mortgage, and 13% would’ve researched the home-buying process more.

MILLENNIALS

Some millennial homeowners expressed regrets about their current home purchase. For instance, 19% wished they had bought a bigger home, 12% said the amenities/features they valued when they purchased their home were no longer worth the price today, and 10% thought they should’ve waited longer before buying a home.

If they had to do it all over again, 57% of millennial homeowners would change their approach to the home-buying process. At the top of the list: 28% said they’d save more money before buying, 15% would do more research on the home-buying process, 14% would better organize their paperwork from the start, and 12% would do more research on the mortgage-lending process.

Twenty-seven percent of millennial homeowners reported that they took out a mortgage at a rate they thought they could afford. However, after they purchased their home, 11% of millennial homeowners no longer felt as financially secure as they did before they bought a home.

GEN X

Additionally, 61% of Gen X homeowners said they would do something differently if they had to go through the home-buying process all over again.

Among current homeowners, 20% of Gen X homeowners, like millennials (19%), wished they purchased a bigger home. For starters, more than one-quarter (27%) said they would save more money before buying a home, 19% said they would do more research on the mortgage process, 18% said they would have shopped around more for a home loan, and 16% would do more research on the home-buying process.

BABY BOOMERS

In reflecting on the overall home-buying process, 56% of baby boomer homeowners said they wouldn’t do anything differently if they had to repeat the process.

Mortgage denied

Of those who have applied for a mortgage, 6% reported being denied — among them, 50% say there were denied on their first try, and one-quarter (25%) say they were denied more than once.

The majority of mortgage applicants who have been denied a mortgage (79%)[2] received an explanation from their mortgage professional for why their loan was denied. While 41% thought their denial was unfair and 33% felt it was embarrassing, over one-third (35%) said it encouraged them to improve their financial situation.

Among mortgage applicants who have been denied, the top three reasons for denial were due to: a high debt-to-income ratio (52%), issues with credit history and score (39%), and having insufficient income (25%).

Our survey found that of mortgage applicants who have been denied a mortgage, 31% were surprised they were denied. The rejection, however, doesn’t seem to deter Americans from pursuing their dreams, as 33% said they knew the next steps and actions they needed to take to purchase or refinance a home.

5 steps to avoid mortgage denial

Getting your mortgage denied can be demoralizing, but proper preparation can lead to a smoother journey and greater home-buying success.

To increase the chances of approval, borrowers can start by taking these five steps:

1. Know where you stand. Before applying for any mortgage, review your credit report and check your FICO scores to uncover any issues and determine if you need to raise your score first. Determine how much monthly debt you are carrying and how much you owe overall.

2. Move quickly to fix mistakes. If you have any accounts in collections, deal with those delinquencies first. Contact the credit reporting agencies immediately if you see any incorrect or false information on your reports.

3. Tackle debt head-on. Pay all of your bills on time and, if possible, in full every month. Learn which debts to pay down first to build your score quickly.

4. Be able to show consistent income over time. Your mortgage lender is going to want to see two years’ worth of tax returns and bank statements to show consistent income deposits. If you’re self-employed, own your own business or depend on tips or commissions to maintain your income, you need to show consistent earnings over a two-year period to be approved for a mortgage.

5. Rein in spending, create a budget and stick to it. As the survey showed, some people feel less financially secure after they buy a home. It’s crucial to control your monthly spending by having a budget in place that helps you qualify for the right loan — and helps you meet other financial goals. And since you’ll have the inevitable maintenance and repair costs that come with homeownership, a savings fund will be important, too.

"If you're serious about buying a home, understand that the mortgage lending process will be a bit invasive, and it's going to take a lot of time and back-and-forth communication," says NerdWallet's Tim Manni. “That’s why you need to be proactive about cleaning up your finances and improving your credit. Educate yourself early about how to address the major issues that will prevent you from qualifying for the right loan or the best mortgage rates. Taking these steps sooner rather than later will better position you in a lender’s eyes.”

METHODOLOGY

This survey was conducted online within the United States by Harris Poll on behalf of NerdWallet during Jan. 12-16, 2017, among 2,241 U.S. adults ages 18 and older, among whom 1,340 had applied for a mortgage and 1,431 currently owned a home. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact Maitri Jani.

[1] Mortgage applicants refers to Americans who have applied for a mortgage.

[2] Please note low base size (n=82) for mortgage applicants who have been denied a mortgage. Statistics for this group should be interpreted as directional in nature.