March 04, 2016
Growing Your Business Opportunities by Helping First-time Homebuyers: Part One
Advising first-time homebuyers can be a unique challenge: often time-consuming, but with the potential to build long-term clients. Now there are many resources to save you time and make you a hero to these clients. Read on for specific ideas and guides, in this first part of our two-part series about advising first-time homebuyers.
- Loan Products for Low Down-payments
- Loan Products for Alternative Income Sources
- Considering Multifamily Properties (coming next week in part 2)
- Changes to FHA Loans (coming next week in part 2)
- Boomerang Buyers (coming next week in part 2)
Even if you haven’t worked with first-time homebuyers this past year, you will likely spend more time with them in 2016. Our clients are telling us that more and more of their time is dedicated to first-time buyers. And this anecdotal evidence from OneTitle clients is backed up by statistics: nationally, 32% of buyers were first-timers in 2015; in the Northeast, nearly 36% of buyers were first-timers in 2015. Although these numbers are near the historic low of 30% (reached in 1987), the number of first-time homebuyers is rapidly rebounding, driven by slowing price growth and easier access to mortgage loans.
Homebuyers with Low Down-Payments
First-time homebuyers often struggle to put together a significant down payment. While Millennials (people aged 18 to 34) have nearly 10% higher incomes than they did less than a decade ago, the cost of entry-level properties has risen even faster.
As a counterpoint, there are a number of new loan products to help buyers without large down payments. Buyers are taking advantage of these products: high loan-to-value loans (i.e. mortgages requiring less than five percent down) are a growing share of the home-buying market, comprising 23 percent of all purchase originations through Q3 of 2015.
Here are low down-payment products for your clients:
- Fannie Mae: In 2014, Fannie Mae developed a way for homebuyers to purchase a home under Fannie Mae’s standard offering or its MyCommunityMortgage product with a three percent down payment if at least one co-borrower is a first-time buyer.
- Freddie Mac: Freddie Mac’s 3% down mortgage product for single-family homes – called Home Possible Advantage – was introduced in March 2015 (5% down on two-unit properties). Home Possible mortgages are appealing because they offer stable monthly mortgage payments with fixed-rate mortgages, flexible closing cost funding options and reduced mortgage insurance coverage levels for LTV ratios greater than 90 percent. The program allows high loan-to-value lending for borrowers with strong credit and helps lenders’ Community Reinvestment Act (CRA) eligible originations.
- State of New York Mortgage Agency (SONYMA): SONYMA also offers products for eligible first-time homebuyers through several mortgage programs, including the Homes for Veterans program, Remodel NY and Achieving the Dream. Each program offers competitive interest rates, low down payments, down payment assistance and no prepayment penalties. SONYMA offers its programs through a network of participating lenders throughout New York State. The mortgage loans are then purchased from the lenders by SONYMA, which funds the purchases by issuing tax-exempt bonds.
Homebuyers with Alternative Income Sources
First-time buyers often look to family members for down payment help. Now they can also rely on family members’ income to reduce their debt-to-income (DTI) ratio.
- Fannie Mae: Fannie Mae recently developed a product called the HomeReady program, which allows borrowers to qualify using income from household members not listed on the mortgage, non-occupant borrowers’ income and rental income. The HomeReady program is designed to help lenders serve creditworthy, low- to moderate-income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities.
First-time Homebuyers May Need More Time to Find a Loan
Prospective, young first-time buyers tend to need more time to find a loan thanks to lower credit scores and income compared to other age groups. According to FICO, nearly 53% of Millennials have scores below 670, and 25% score between 670 and 739. The average score for conventional mortgages – loans eligible for sale to Fannie Mae and Freddie Mac – closed in December was 754. The average FICO score for Americans is 695.
HomeReady by Fannie Mae. Home Possible Mortgages by Freddie Mac. Federal Housing Finance Agency (FHFA) Annual Conforming Loan Limits. SONYMA Products for First-Time Homebuyers. Home Buying Predictions for a New Year. By Lisa Prevost. The New York Times. December 25, 2015. Here’s why 2016 will bring good news for potential homebuyers; Redfin 5 housing predictions for next year. By Brena Swanson. Housingwire. December 14, 2015. Financing a Multifamily Home. By Lisa Prevost. The New York Times. December 11, 2015. F.H.A. Loans Preferred. By Lisa Prevost. The New York Times. December 18, 2015. Home Loan Programs Let Buyers Put Less Down. By Tara Siegel Bernard. The New York Times. February 6, 2015. 6 Stellar Reasons to Buy a Home in 2016. By Kimberly Dawn Neumann. realtor.com December 28, 2015. Fannie Mae Announces 97 Percent LTV Option for First-Time Homebuyers. News Release. December 8, 2014. Freddie Mac 3% Down Checklist. Freddie Mac Blog. March 30, 2015. Will Housing Logjam Bust in 2016? Don’t Bet the Mortgage or Rent on It. By Martha C. White. nbcnews.com December 30, 2015. First-Time Homebuyers: The New Elite? By Bob Sullivan. credit.com January 25, 2016. What’s Next for the Housing Market? Think cautious optimism. By Jill Schlesinger. Time Inc. Network at time.com/money January 26, 2016. How is Low Inventory Affecting the Housing Market? By Brian Honea. DSNews.com February 3, 2016. What will it take for homeowners to crack open the ‘credit box’? By Kenneth R. Harney. The Washington Post. February 3, 2016. Will 2 million ‘boomerang buyers’ ignite housing? By Diana Olick. www.cnbc.com June 19, 2015. After Foreclosure the Boomerang Buyers Return. By Anna Cuevas. huffingtonpost.com September 22, 2015. Student Loans May Affect Mortgage Eligibility. By Betsy Mayotte. usnews.com February 3, 2016.