According to the FHA’s report for its fiscal second quarter (which covers Jan. 1 to March 31, 2019), the average credit score for an FHA borrower fell to 665 in the second quarter. That’s the lowest level since 2008, and is “well below” the FHA lending peak credit score of 703, which happened in 2011.
According to the FHA report, the share of 680–850 credit scores continues to decline among FHA borrowers, while lending to borrowers with credit scores below 640 continues to rise.
The FHA report shows that in 2011, nearly 60% of borrowers had credit scores above 680. Now, only 34% of FHA borrowers have credit scores above 680. Meanwhile, the share of FHA lending to borrowers with credit scores below 640 has increased to nearly 30%.
“This increase shows a much riskier population of mortgages being endorsed by FHA,” the report states. “Performance of these mortgages will be closely monitored to determine when policy changes should be implemented.”
Beyond that, FHA loans have also seen a sharp increase among loans with high debt-to-income ratios, meaning borrowers are taking on more debt compared to their income level.
According to the FHA report, in 2018, nearly 25% of all FHA purchase mortgages had a DTI ratio above 50%. And that number has been rising for several years, a trend that FHA noted as concerning last year.
But despite noting that concern, the percentage of borrowers with DTIs above 50% continued increasing in the second quarter, climbing to 28% of all FHA purchase loans. According to the FHA, that’s the highest percentage of high-DTI loans in a single quarter since “at least the year 2000.”
The FHA notes in its report that this increase shows that its loans are getting riskier.
“This is a risk to the MMIF that the FHA is attempting to manage and mitigate through various policy levers,” the FHA said.
They say the high-earners who buy a million-dollar house are the losers, but those folks can still deduct the roughly $30,000 per year in mortgage-interest paid on a loan amount of $750,000 (though if they were renting previously they now have to pay property taxes).
Reasons for High-Earners to Buy a House:
Deduct mortgage interest of $30,000 paid on your $750,000 loan (or higher).
Secure where you are going to live over the next 5-50 years.
Build equity with each payment.
Gamble that the value will go up.
Make the family happy.
Reasons for High-Earners Not to Buy a House:
Have landlord pay property taxes, HOA, etc.
Have landlord fix stuff.
Stay flexible on where to live.
Hope prices go down and buy later.
Numbers 1-4 on both lists probably offset each other, so the focus is on #5.
Are you thinking of selling your home, and curious about the idea of out-fitting it for a multi-gen buyer? Or want help in getting the home into top condition in order to sell it for top dollar?
We’re here for you!
The Compass Concierge program is willing to pay for repairs/improvements to your home, and be reimbursed at the close of escrow. At first, the program was just for the basics, but it’s been expanded to include virtually everything!
And it’s free – the service comes with listing your home with us, at no extra charge!
Here are examples of what’s been done lately:
In Los Angeles, an agent used Compass Concierge to buy — not stage, but buy outright — $900,000 worth of furniture in order to win two listings, one worth $23 million and the other worth $87 million.
In Philadelphia, an agent was in the midst of a contentious divorce sale. The husband and wife weren’t talking and neither wanted to pay for the staging, painting, and cosmetic repairs the home needed. So the agent pitched Concierge as the solution, and solved the problem!
There was a buyer looking at a million-dollar property listed by a Compass agent that needed a lot of work, but the buyer couldn’t afford to pay a $200K down payment and then shell out another $200K in cash for remodeling. The seller and buyer came to an agreement that the seller would use Concierge to do a $200K remodel first — raising the sale price to $1.2 million but only increasing the down payment by $40K. The buyer was floored.
Twenty percent of Americans is a good-sized group, and with the cost and difficulty of senior care being so high, it is natural for more people to consider multi-generational living. Home sellers who can present their home as multi-gen friendly could really benefit.
PNC is one of several banks and lenders paying more attention to “the sandwich generation,” people with dependent children and with elderly parents for whom they need to care. While not everyone in the sandwich generation has parents living with them, it is a growing phenomenon: Today, 20% of Americans live in multigenerational homes, where at least two adult generations live under one roof, accounting for 64 million people. In 1980, only 12% of Americans lived this way, according to the Pew Research Center.
“This has been on our radar for the last couple of years,” said Todd Johnson, Wells Fargo Home Lending’s Division Sales Manager, Pricing and Products Lead. In January, Wells Fargo lowered the down payment requirement for duplex buyers to 5% from 15% to 20%. This program is only available for loans that conform to Fannie Mae and Freddie Mac guidelines, but Mr. Johnson noted that loan limits for duplexes in costly areas can be relatively high.
For example, in San Diego a conforming duplex loan can reach $883,300, and in San Francisco, $930,300, Mr. Johnson said. Such loans can have as many as four borrowers, so a couple plus a set of elderly parents can all take out the loan together, Mr. Johnson said.
The program, however, comes with homework: It requires borrowers to take a four- to six-hour online course about being a landlord. What if your own mom and dad are going to be your tenants? You’ve still got to take the class, Mr. Johnson said. It covers issues such as getting insurance and landlord deductions and depreciation.
A common approach is for the older couple to sell their own home and use the equity to help make the down payment on the multigenerational home.
If a loan doesn’t allow gift funds to be used as a down payment, Ms. Graziano said, “the older couple may need to become a co-borrower on the mortgage loan as well as an owner named on the title to the property.”
When those older parent co-owners pass away, it can get complicated, especially if the parents have other heirs, says Ms. Graziano. “It may require refinancing the property to cash out the [parents’] equity, or selling the property.” For loans that PNC Bank treated as a single-family home at origination, the borrowers can rent out their extra unit to someone else without penalty if renting parents die or move, Mr. Boomer said.
There are so many new-home tracts underway in Carmel Valley that those thinking of reselling an older home may want to wait it out – or risk having to battle it out, price-wise, against stiff competition:
Hat tip to Eddie89 for sending in this article that includes 14 stories of how millennials purchased homes:
Homeownership, like other forms of participation in the American dream, increasingly resembles an exclusive country club, with membership predicated on who your parents are and your race. To wit: A millennial’s likelihood of owning a home increases 9% if their own parents were also homeowners. While 39.5% of white millennials own homes, the black homeownership rate is just 13.4%, the Asian ownership rate is 27.2%, and the Hispanic ownership rate 24.6%. “Left unchecked,” the Urban Institute study declares, “current trends will result in even greater wealth disparities among white, black, and Hispanic millennials.”
The trends we’re seeing right now in homeownership will reverberate for generations to come — and accentuate the 21st-century parameters of privilege. The difference between people whose family can afford to help with a down payment and people who have no choice but to rent might mean the difference between who can live within 15 minutes of their job and who has to commute two hours, between who’s employed full time and those who depend on contingent work, between who can presume safety in public spaces and whose skin color makes them a perceived threat, between who can pay for college independently and whose children — and grandchildren — will eventually take out their own massive student loans.
I wanted to talk to people within this new reality about how they actually managed to make homeownership work. So I created a survey, and asked readers and Twitter followers and friends of friends of friends: Tell me everything. Tell me how you found the house, how you pulled together the down payment, and how you feel about all of it. Being transparent about this stuff won’t necessarily make buying a home easier for others. But it will hopefully demystify what it takes to make it happen, and help make clear that millennials who don’t own homes aren’t failures. They’re just young people who have faced a dramatically different financial and real estate reality than the generations that came before — a reality that has impacted some more than others.
What follows are 14 stories chosen from over 500 submissions, and they all exemplify, in some way, themes I saw again and again. (Stories have been lightly edited for length and clarity; some names have been changed to protect people’s privacy.) Many people received money from family for a down payment; they chose to buy in an area of the country where homes are markedly cheaper; their parents were homeowners or felt very strongly about homeownership as a mark of adulthood; others are ambivalent about their own homeownership and the way it excludes so many others their age.
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