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Discover Home Loans Poll: Buyers Believe a Home is a Good Investment but Many Are Unprepared for Mortgage Process

DISCOVER HOME LOANS POLL:
BUYERS BELIEVE A HOME IS A GOOD INVESTMENT BUT MANY ARE UNPREPARED FOR MORTGAGE PROCESS

Potential Homebuyers Have Not Used All Available Resources or
Determined Key Costs

Riverwoods, IL, July 21, 2014 — Homebuying season is in full-swing and a recent independent poll commissioned by Discover Home Loans shows that 94 percent of prospective buyers believe they are making a good investment by purchasing a home. Although 87 percent are confident they will find an affordable home loan, the poll shows many have not done the math to determine their costs. In fact, 63 percent find themselves overwhelmed by the amount of mortgage information available.

Financial Readiness
A large majority of buyers surveyed are confident in their ability to secure an affordable loan and obtain the type of property they want.

  • More than three-fourths of buyers, 83 percent, have been pre-qualified for a home loan.
  • Sixty percent of respondents began their home search after at least one of the following took place, including:
    • Having achieved sufficient financial stability, 22 percent
    • The market becoming more affordable, 20 percent
    • Improved credit scores to qualify for better mortgages, 20 percent
    • Mortgage rates and lending options becoming more affordable, 18 percent
    • Having saved enough for a down payment, 17 percent

Unsure of the Cost
Despite feeling financially prepared when entering the process, many homebuyers don’t know what purchasing a home will actually cost them.

  • Although 87 percent know what type of property they can afford, only 52 percent have actually determined what their projected monthly payment may be.
  • Forty-one percent have yet to calculate their down payment.
  • Nearly half, 48 percent, don’t know how much their mortgage payment would be if they chose a more or less expensive property.

Inundated with Information
In general, the majority of those looking to purchase a home find information about the financing process overwhelming.

  • Nearly two-thirds feel overwhelmed by the amount of information available on home financing.
    • This is especially true for those under age 30, of which 76 percent reported feeling overwhelmed.
    • Seventy-six percent of first-time buyers reported feeling overwhelmed, versus 54 percent of those who have previously owned.

“The industry is becoming more transparent in an effort to help homebuyers become informed about changes that may affect their process,” said Cameron Findlay, chief economist at Discover Home Loans. “The sheer amount of information can lead to confusion and stress. Those looking to purchase should work closely with their lender and realtor to make sure they are comfortable with mortgage terms and understand the impact a loan will have on their finances.”

Key Resources
Prospective homebuyers turn to a variety of different resources to help them make key decisions and understand the process.  For example, for help determining whether buying a particular home would be a good investment, prospective buyers turn to real estate agents most often, 66 percent, then to family and friends, 56 percent.  However, when evaluating mortgage terms and comparing offers, they turn to mortgage bankers most often, 59 percent, then to real estate agents, 49 percent.

The national survey of 1,037 prospective homebuyers was commissioned by Discover Home Loans and conducted by Versta Research, an independent survey research firm (http://www.verstaresearch.com), March 24 to April 4, 2014. Assuming no sample bias, the maximum margin of sampling error was +/-3 percentage points with a 95 percent level of confidence.

About Discover
Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America's cash rewards pioneer, and offers home loans, private student loans, personal loans, home equity loans, checking and savings accounts, certificates of deposit and money market accounts through its direct banking business. It operates the Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories. For more information, visit www.discover.com/company.

Media Contact:
Susan J. Diaz de Leon
Discover
224-405-5344
Susandiazdeleon@discover.com

###

1. In what year were you born?
[TERMINATE IF AFTER 1995]

  • 18-29 - 22%
  • 30-39 - 28%
  • 40-49 - 21%
  • 50-59 - 18%
  • 60-69 - 11%
  • 70+ - 1%

 

2. Are you:

  • Male – 47%
  • Female – 53%

 

3. Which best describes you:

  • Single – 25%
  • Married or living with partner – 61%
  • Divorced – 12%
  • Widowed – 2%

 

4. How many children under the age of 18 are currently living with you?

______ children living with me

  • 0 children living with me - 44%
  • 1 child living with me - 28%
  • 2 children living with me - 19%
  • 3+ children living with me- 9%


5. Do you plan to purchase a home to use as your primary residence within the next 12-18 months?

  • Yes – 100 %
  • No [TERMINATE]

 

6. Will you be getting a loan or mortgage from a bank or other commercial lender to buy your home?

  • Yes – 100 %
  • No [TERMINATE]

 

7. How far along in the home buying process are you?

  • I’ve just started reviewing ideas, looking at homes, and exploring my options – 71%
  • I’ve started the finance process (which might involve selecting a mortgage provider or broker, getting pre-qualified or pre-approved, etc.) – 22%
  • I’ve made at least one offer on a home, even if it fell through – 4 %
  • I have an offer in place, and we are hoping for the sale to close – 3%

 

8. Are you working with a real estate agent?

  • Yes – 39%
  • No, but I plan to – 44%
  • No – 16%

 

9. Have you selected a specific bank or mortgage provider for your loan?

  • Yes – 40%
  • No – 60%

 

10. [IF YES] Are you (or were you) pre-qualified for your loan?

  • Yes – 83%
  • No – 17%

 

11. In what state are you shopping for a home?

[SHOW DROP DOWN. DIVIDE INTO FOUR REGIONS ACCORDING TO NAR, AND SET QUOTAS]

  • Northeast - 17%
  • Midwest - 23%
  • South - 36%
  • West - 25%

 

12. Which of the following best describes the area in which you plan to buy your home?

  • City – 29%
  • Suburb – 54%
  • Rural area – 17%

 

13. Which of the following best describes your previous experience with home ownership?

  • I have never owned a home before - 27%
  • I have previously owned a home but I did not purchase it myself (i.e., I inherited it, my spouse purchased it, etc.) – 14%
  • I have purchased a home before – 59%

 

14. [IF PURCHASED BEFORE] In what year did you last purchase a home to use as your primary residence?
___ ___ ___ ___

  • Less than 5 years ago -14%
  • 5-9 years ago - 32%
  • 10-14 years ago - 24%
  • 15-19 years ago - 14%
  • 20-29 years ago - 11%
  • 30+ years ago - 5%

 

15. Please indicate below your confidence level with the home buying process.

RANDOMIZE ROWS

Not At All Confident

Not Very Confident

Somewhat Confident

Very Confident

I will be able to afford the type of home I want

3%

13%

49%

35%

I will be able to secure an affordable rate on my home loan

2%

11%

54%

33%

I will understand the finance process and the terms of my home loan

1%

9%

52%

38%

I will have multiple home loan options to choose from

3%

14%

56%

28%

I will be making a good investment by buying a home

1%

5%

43%

52%

The financing process will be fast and run smoothly

4%

21%

54%

22%

I will find a trustworthy and reliable mortgage banker to work with

1%

9%

54%

36%

[IF YES OR PLAN TO IN Q8] I will find a trustworthy and reliable real estate agent to work with

1%

6%

51%

42%


 

 

16. Which of the following people and resources do you turn to for help and information to assess whether purchasing your home will be a good investment?

Select all that apply

  • A real estate agent – 66%
  • Family or friends – 56%
  • A mortgage banker – 39%
  • A financial advisor – 35%
  • Media reports or expert advice about home buying – 19%
  • Online financial tools or calculators – 37%
  • None of the above – 6%

 

17. Which of the following people and resources do you turn to for help and information to evaluate mortgage terms and compare offers?

Select all that apply

  • A real estate agent – 49%
  • Family or friends – 40%
  • A mortgage banker – 59%
  • A financial advisor – 34%
  • Media reports or expert advice about home buying – 12%
  • Online financial tools or calculators – 35%
  • None of the above – 3%

 

18. Which of the following people and resources do you turn to for help and information to understand the financing process?

Select all that apply

  • A real estate agent - 42%
  • Family or friends – 37%
  • A mortgage banker – 59%
  • A financial advisor – 38%
  • Media reports or expert advice about home buying – 12%
  • Online financial tools or calculators – 30%
  • None of the above – 4%

 

19. Which of the following people and resources do you turn to for help and information to determine your price range and mortgage payments?

Select all that apply

  • A real estate agent – 44%
  • Family or friends – 28%
  • A mortgage banker – 60%
  • A financial advisor – 34%
  • Media reports or expert advice about home buying -11%
  • Online financial tools or calculators – 35%
  • None of the above – 4%

 

20. Have you determined or estimated the price range you are considering for homes you might buy?

  • Yes – 84%
  • No – 16%

 

21. [IF YES] Will it be a stretch for you to afford the high end of that price range, or not?

  • Yes, it would be a stretch — I would have a hard time affording it – 45%
  • No, it would not be a stretch — the high end of the price range I am considering is very affordable – 55%

 

22. If you found a home that you really wanted but it was outside of your price range, or if it would be at the higher end of your price range and difficult for you, how likely is that you would do each of the following:

RANDOMIZE ROWS

Not At All Likely

Not Very Likely

Somewhat Likely

Very Likely

Take out a larger, less affordable mortgage

24%

37%

30%

10%

Take out a mortgage with a longer pay-back period (i.e., 30 years vs. 15 years)

8%

17%

51%

23%

Make big sacrifices in your lifestyle and spending in order to pay for it

12%

26%

45%

17%

Borrow additional money from a friend or family member

40%

29%

23%

8%

Put off the home purchase until you can afford it

12%

27%

43%

17%

 

23. What type of mortgage do you plan to get?

  • 30-year fixed rate FHA mortgage – 21%
  • 15-year fixed rate FHA mortgage – 10%
  • 30-year fixed rate mortgage – 23%
  • 20 year fixed rate mortgage - 12 %
  • 15-year fixed rate mortgage - 12%
  • 10 year fixed rate mortgage – 5%
  • 7/1 adjustable rate mortgage – 1%
  • 5/1 adjustable rate mortgage – 1%
  • Jumbo mortgage – <1%
  • I don’t know – 14%

 

24. Have you determined how much your monthly mortgage payments will be?

  • Yes – 52%
  • No – 48%

 

25. Have you determined how much your down payment will be?

  • Yes – 59%
  • No – 41%

 

26. Do you know how much your monthly mortgage payment will be if you choose a more expensive or less expensive home?

  • Yes – 52%
  • No – 48%

 

27. Do you know the type of home you can afford?

  • Yes – 87%
  • No – 13%

 

28. Will the home you plan to buy most likely be:

  • A short-term home until you can afford to buy your ideal home – 11%
  • A long-term home, but probably not your last – 51%
  • The last home you will buy – 32%
  • Not sure – 6%

 

29. How long do you expect to live in the home you will buy?
_____ years

  • Less than 10 years - 17%
  • 10-14 years - 21%
  • 15-19 years - 13%
  • 20-29 years - 22%
  • 30+ years - 27%

 

30. Please indicate below the extent to which you agree or disagree with the following statements about the information available on home financing.

RANDOMIZE ROWS

Disagree
Strongly

Disagree
Somewhat

Agree
Somewhat

Agree
Strongly

I have found the information I need on home financing

3%

17%

57%

23%

I can trust the information available on home financing

1%

15%

64%

20%

I understand the information available on home financing

2%

11%

62%

25%

I am overwhelmed by the amount of information available on home financing

10%

27%

44%

19%

The information available is up to date with what is going on in the market

1%

11%

64%

24%

 

31. Which of the following steps, if any, have you been taking to save for a down payment on a new home?

RANDOMIZE ROWS
Select all that apply

  • Cutting back on other savings – 19%
  • Eating fewer meals at restaurants – 46%
  • Going out less often to movies or other events – 41%
  • Cutting back on cable TV or other entertainment subscriptions – 25%
  • Cutting back on cell phone plans or downgrading to less expensive devices – 20%
  • Driving less or not driving at all – 21%
  • Taking fewer vacations – 44%
  • Shopping less often for new clothes or other discretionary items – 47%
  • Cutting back on hobbies – 30%
  • Cutting back on credit card debt – 46%
  • Cutting back on spa treatments or other luxury items -30%
  • Putting off other large, non-essential purchases (such as a TV, computer, car, etc.) – 42%
  • None of the above – 16%

 

32. Which of the following steps, if any, do you think you will be taking after you own a new home in order to afford your monthly mortgage payment?

SHOW ROWS IN SAME ORDER
Select all that apply

  • Cutting back on other savings – 19%
  • Eating fewer meals at restaurants – 40%
  • Going out less often to movies or other events – 34%
  • Cutting back on cable TV or other entertainment subscriptions – 21%
  • Cutting back on cell phone plans or downgrading to less expensive devices – 18%
  • Driving less or not driving at all – 16%
  • Taking fewer vacations – 39%
  • Shopping less often for new clothes or other discretionary items – 37%
  • Cutting back on hobbies – 24%
  • Cutting back on credit card debt – 38%
  • Cutting back on spa treatments or other luxury items – 27%
  • Putting off other large, non-essential purchases (such as a TV, computer, car, etc.) – 32%
  • None of the above –21%

 

33. Please think back to the first time that you started seriously thinking about buying a home (for which you are now shopping). How long were you thinking about it before actually starting the process?
______ years and/or ______ months

  • Less than 6 months - 11%
  • 6-11 months - 15%
  • 12 months to less than 2 years - 33%
  • 2 years to less than 3 years - 22%
  • 3 or more years - 20%

 

34. What changed that made you finally start the process?

RANDOMIZE ROWS
Select all that apply

  • More homes became available for sale on the market – 16%
  • The homes for sale on the market became more affordable – 20%
  • Mortgage rates and lending options became more affordable – 18%
  • Mortgage rates started rising, so I wanted to catch them while they were still low – 13%
  • I achieved enough savings for a down payment – 17%
  • I achieved enough financial stability to make it possible – 22%
  • I received a promotion or raise at my job – 9%
  • I moved to a new city – 12%
  • I got a new job – 12%
  • I have a new child or will soon have a new child – 8%
  • I improved my credit score to qualify for a better mortgage – 20%
  • My family circumstances changed so that I really needed a new home – 22%
  • I need to downsize – 10%
  • I need to a bigger home – 25%
  • I want to live in a better neighborhood – 24%
  • I want to live in a better school district – 9%
  • Other changes – 14%

 

35. Which of these ranges includes your total household income for 2013 (before taxes)?

  • Less than $25,000 – 5%
  • $25,000 to $49,999 – 24%
  • $50,000 to $74,999 – 28%
  • $75,000 to $99,999 – 19%
  • $100,000 to $149,999 – 14%
  • $150,000 to $199,999 – 5%
  • $200,000 or more – 3%