Millennials are a well-versed group. They can text with their eyes shut, multi-task all day long and somehow keep in touch with everyone they’ve ever met. But when it comes to getting home loans, they’re woefully in the dark about their options, and that’s why so many of them continue to rent rather than buy.
A recent Federal Reserve Board consumer survey found many current renters would rather be homeowners. However, the report[i] showed that 45% of renters aren’t looking to buy because they don’t think they can come up with the necessary down payment. And 29% believe they simply wouldn’t qualify for a mortgage.
A widely-held perception during the Great Recession was that prospective homeowners seeking mortgages must have both spotless credit and a significant chunk of change for a down payment — unattainable goals for many Americans. Unfortunately, this perception continues to discourage young, would-be homebuyers from purchasing their first homes.
Good news for would-be homeowners
The creator of FICO Scores recently announced changes to its scoring model that could help lift consumers’ credit scores.[ii] Coming this fall, FICO Scores will ignore debts that have been paid off or settled, and a lesser weight will be assigned to medical bill collections (which account for about half of all unpaid collections on consumers’ credit reports). While it is not clear yet when or if lenders will accept the new scoring model, this move could translate to higher credit scores and better rates for borrowers, saving them thousands of dollars and making homeownership an even more affordable investment.
And in other good news, there are many options for first-time homebuyers to raise enough money for a down payment. Low- to moderate-income borrowers need only put 3% down when they qualify for programs like Fannie Mae’s MyCommunityMortgage® and Freddie Mac’s Home Possible®. Down Payment Assistance Programs (DPAs) available from the Housing Finance Agencies (HFAs) are once again picking up steam. And borrowers fortunate enough to receive down payment gift funds from parents or family members can finance their homes with conventional, fixed-rate loans. In fact, MGIC offers the most extensive gift policy in the private mortgage insurance industry. All of these programs backed by private MI offer the first-time homebuyer an opportunity to attain homeownership sooner.
You can take advantage of MGIC’s tools, including online calculators and reliable pre-approvals, to help determine the best options for your borrowers. MGIC also offers a comprehensive Homebuyer Education program that can help you market to and educate prospective first-time borrowers. All in all, things are looking up for future homeowners — if only they knew about it. As a mortgage professional you can help them understand their home-buying options and that their dream of homeownership can be realized sooner than they might think.
[i] Report on the Economic Well-Being of U.S. Households in 2013 (July 2014)
[ii] The New York Times (Aug. 7, 2014)
What are some of the hurdles you have found facing first-time homebuyers? Share in the comments.