First Time Home Buyers Are Not Using FHA

“Millennials have long been called the next wave of home buyers.” I don’t know why this is “shocking” because the US Housing Market has always relied on First Time Home Buyers coming into the market to help everybody else move up, or downsize. First time home buyers comprised 38 percent of single-family home purchases last year, their biggest share in the market since 2000, according to Bloomberg.  The most interesting characteristic of this group of home buyers is that they are relying on Conventional Financing Programs, first time home buyers are not using FHA as the “go to” program.

Again, I don’t think that’s shocking either.  First Time Home Buyers, and particularly those between the ages of 19 and 37, have seen rental prices go up extremely fast, making it difficult to save much money.

Based on a recent annual survey of home buyers, NAR estimated that 36 percent of all home sales involved millennials last year, up from 34 percent in the previous survey year, which reflected activity for parts of 2015 and 2016. In the most recent survey, NAR mailed a series of questions to home buyers who purchased homes between July 2016 and June 2017.

Millennials have held the top home-purchasers spot in the NAR survey among generational groups for five consecutive years. They also now represent more than two-thirds of all first-time home buyers, NAR says.

This group of First Time Home Buyers also have an enormous amount of Student Loan Debt.  The new Student Loan Forgiveness program actually REQUIRES you to be in a income driven repayment plan.  If you are in this sort of IBR schedule, and you’ve made at least 120 payments, or ten years of service.

If you work for any of the following, you qualify under the new Budget for Student Loan Debt Forgiveness:

• A government organization (any level)
• A not-for-profit group that is tax-exempt i.e. a 501(c)(3) organization
• Other types of not-for-profit organizations that are not tax-exempt that meet certain public service requirements

Qualifying employment also extends to volunteers in the AmericCorps or Peace Corps, the government says. If you’re unsure whether you qualify, contact the DOE and tell them about your role in the organization you work for.

So, if you want to have your Student Loans forgiven, they key is that they have to be in a Income Based Repayment Status… the problem with that when you are trying to buy a house, is FHA.

Although more millennials are buying homes, the numbers should be higher, the National Association of Realtors said. “The homeownership rate for buyers under the age of 35 is 7 percentage points lower than its 2004 peak level of 43 percent.”

First Time Home Buyers are not using FHA as the “go to” program, in part because FHA says you must be on a Level Payment plan that is fully amortized, or we must count 1% of the student loan debt against you.  

First Time Home Buyers Are Not Using FHA

If you buy a home using a Fannie Mae Mortgage Loan (a type of Conventional Loan), we can count the payment listed on the credit report.  So if your IBR payment is zero, we need a letter from your Student Loan Servicer stating that it is Zero.  We can then get that information reported accurately on your credit report, and we are able to qualify you with a zero payment. If your IBR payment is $89 on $43,679 of debt, then we are going to qualify you with the $89 dollar payment on a Conventional Loan.

This is why Lenders have been steering a greater percentage of First Time Home Buyers into conventional loans, and away from the Federal Housing Administration (FHA) program.  We would be forced to count 1% of the total student loan balance for a FHA Mortgage.

Also, the FHA Mortgage Program has fairly “pricey” Mortgage Insurance, especially is you have good credit scores.  Because FHA does not vary the Mortgage Insurance based upon “risk” like PMI companies do, those who have good credit pay much more.  Most of the First Time Home Buyers we talk to have been vigilant about creating a good credit score!

Among loans closed in January, 67 percent of the mortgages taken out by millennials were conventional loans and 28 percent were FHA-backed loans, Ellie reported, based on loans that flowed through its origination platform. In January 2017, the FHA share was at 36 percent and the conventional was around 61 percent, said Joe Tyrrell, Ellie’s executive vice president of corporate strategy.

Fannie Mae and Freddie Mac have rolled out programs that enable borrowers to put just 3 percent down on a loan.  Fannie Mae and Freddie Mac are also offering lower PMI rates for some of these programs.  Again, this is a reason why first time home buyers are not using FHA

Fannie Mae now allows for a total debt ratio of 50%.  This includes the payment for the new home, plus all other debt reporting to a credit bureau.

When there are 10 or less recurring monthly payments remaining on an installment debt and if the monthly payment doesn’t significantly affect the borrower’s ability to meet all obligations, Fannie will allow us to exclude the monthly payment.

Note: When DU determines the monthly payment to be insignificant, it will automatically omit the debt from the ratios.

The down payment assistance programs for Conventional Loans are sometimes referred to as DAPs, DPAs, First Time Home Buyer Grants or First Time Home Buyer Assistance Loans.  All of these terms refer to the same type of mortgage loan.  Although where the money comes from for the assistance might vary – the “spirit” of these programs are the same, and in most cases, the way you qualify will also be basically the same.

You apply for a down payment assistance program at the same time you apply for the mortgage.  Quicken doesn’t offer these programs.

The National Association of Realtors also said that the big wave of millennial buyers has just started. Ellie Mae estimates that In 2021 nearly 25 million people will be between the ages of 29 to 32, the age when most people start thinking about buying a home.

If you have questions about why first time home buyers are not using FHA, and what your alternative might be, call Steve and Eleanor Thorne 919 649 5058 Mortgage approval with deferred student loans or short-term debt, right now, can be like working a really really hard Sudoku puzzle – it takes someone who REALLY knows Program Requirements to be able to look at your overall debt to income ratio and find the right program for you.  We want to help you get the numbers to work.  We deal with SOOO many folks who have various types of deferred student loans, and unusually debt situations, that we know what WILL work, and what won’t. Please call call Steve and Eleanor Thorne 919 649 5058