Friday, August 25, 2017

Millennials using conventional loans

I woke up one recent morning thinking… “we haven’t done a whole lot of FHA loans lately.”  Today, I received the below image by Ellie Mae Millennial Tracker which shows millennials are preferring conventional loans.  A couple years ago, FHA loans were a great option for first-time homebuyers due to the low down payment requirement of 3.5%, lower credit score requirements, better rates, and tolerance for higher debt-to-income ratios (qualify at a higher price point). 

In December of 2014, conventional 3% down mortgages were reintroduced to the market - lower than FHAs 3.5%.  Since, Fannie Mae and Freddie Mac have eased up on their qualifying guidelines for these 3% down mortgages and made the rates/fees more attractive.  Private mortgage insurance premiums, which are used with conventional loans that have less than 20% down, were also reduced in recent years.  This, along with FHAs adjustment to make mortgage insurance last the life of the loan for less than 10% down mortgages, made conventional loans more competitive and attractive for homebuyers that plan to live in the house long term.  After all, obtaining homeownership should be a long-term plan. 

After seeing this infographic, I decided to research what Team Scott has originated since January 1st, 2016 regarding 30 year fixed mortgages within the conforming loan limits.  Out of 103 purchase transactions in this criteria, 92 of these were conventional loans (89.3%).  Only 11 were FHA loans (10.7%).  Regarding the conventional loans, 24% were millennial homebuyers.  The FHA loans were made up of 27% millennials.  That’s pretty good for millennials, which will likely continue to increase that percentage as more and more enter the home buying market. 

In my opinion, FHA will likely need to make some adjustments to better compete with conventional loans.  Don’t get me wrong, FHA loans are still a great option for low down payment and low credit score borrowers.  However, conventional loans have found a way to better compete with FHA in recent years. 

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