The down payment has been a big obstacle in recent years for renters looking to buy their first homes. A new mortgage offering aims to ease the burden.
Home Partners of America, a rent to own company, is offering a new mortgage product to tenants that applies some of the appreciation in their home’s value during the time they have lived there toward reducing the down payment. In areas with even modest home-price appreciation, that could reduce the down payment requirement to almost nothing.
To qualify, tenants must have paid their rent on time for two consecutive years and be considered first-time buyers, meaning they haven’t owned a home in the last three years.
The program harkens back to the housing bubble, when millions of Americans received mortgages for homes they couldn’t afford with little or no down payment.
Bill Young, co-founder and chief executive of Home Partners, said a critical distinction with his company’s program is that prospective buyers have been paying their monthly rent on the same home over a long period, demonstrating they can afford it and are committed to staying there.
“Their skin in the game is they’ve proven they can pay their rent on time for 24 months,” Mr. Young said.
Check the latest mortgage rates on Home Partners, which was started about five years ago and has purchased nearly 8,000 homes in more than 50 metropolitan areas, plans to offer the product to current tenants and those who sign a lease over the next two years, the duration of the pilot program. The company won’t make the loans itself, but is working with New Penn Financial, a Pennsylvania-based lender.
The loans will be backed by mortgage company Fannie Mae, which recently has been experimenting with programs designed to ease credit for young buyers who are missing out on a recent surge in home prices because they haven’t saved enough for a down payment. Other pilots include a program under which Lennar Corp. will pay off a significant chunk of the student loan of a borrower who purchases a home from the Miami home builder. In another, buyers can receive up to $50,000 for a down payment if they agree to rent a room in their home on Airbnb.
Rent-to-own companies have a poor reputation in the housing industry for taking nonrefundable deposits from tenants who clearly won’t ever be able to qualify for a mortgage or afford a home. Home Partners doesn’t take a nonrefundable deposit, so if the home’s value declines or they decide not to buy for any other reason renters can simply walk away.
By Laura Kusisto | Wall Street Journal
1. Will I live there in 3 years?
Renting has one advantage over buying - mobility. Otherwise you should be buying in most markets, but can you ask yourself if you'd want to be there 2 or 3 years from now. In some real estate markets the average person moves so often they think they may not want to be there. Still even with (Arizona's) unique growth and sprawl, the rent rates make it an almost given that you should be buying. 3 years is the number that basically helps a home buyer break even with appreciation helping cover the initial costs.
2. What's My Real Budget?
If you've been renting it makes sense to buy, but a lot of buyers just see what they can get vs what they can afford. It's very common to see first time home buyers end up "house poor" where they can't afford to furnish the home. While quite possibly the worst way to buy all other items, using a monthly budget is ideal for real estate. It's good to work on this monthly budget before talking to a loan officer for a pre-approval.
3. Will I use more than the internet to shop
Not shopping / interviewing is a (HUGE!!!) mistake that most buyers make (in fact, it is for most. According to an NAR Study, 85% of home buyers and sellers pick the very first agent they talk to). In addition, they often choose the first vendor they interact with, whether that's a real estate agent, attorney, inspector, the list goes on. It's so worth it to get good people. The same goes for picking a home.
In addition, many home buyers use sites like Zillow that have one goal. Traffic. They convert this traffic into advertising dollars for real estate agents. It doesn't matter whether a home sold or that their Zestimate of is off by 20% or even if they are misrepresenting a listing. It's worth it to use an agent here.
4. More Money Question
As in "do I have enough money to pay for the cost of purchasing (closing costs, appraisals, inspections)... and do I have enough to actually furnish the home?" Going back to the house poor questions, but basically there is a cost to owning a home and there's a cost to decorating it. If you're thinking of buying a home you should consider these costs. That isn't to scare you but rather prepare you.
If you can answer these questions confidently, then the only other question is where do you want to buy?
In an effort to reach out to homebuyers and owners juggling student loan and mortgage payments, Fannie Mae announced several new policies that ease some of the challenges these people face.
There are three major changes that are expected to make obtaining a residential mortgage easier for borrowers with student debt.
Three new rule changes
The first is the student loan cash-out refinance. This allows borrowers to refinance a current mortgage to use the funds to pay down the remainder of their student loans. They could also potentially get a lower mortgage rate in the process.
“44.2 million Americans are paying down student debt.”
The second change applies to borrowers who have some debt that’s paid by others, such as a borrower whose parents pay down the monthly credit card, auto loan or student loan payments.
Under the old rule, these balances would be included in a borrower’s debt-to-income ratio – a measure lenders look at as one way to determine the risk associated with a potential borrower. The new rules state that they can be excluded from the DTI calculation, as long as they meet two requirements:
According to Student Loan Hero, 44,2 million Americans are paying down student debt, and the typical graduate is leaving college with around $30,000 in debt; 1% of this amount would be $300. While the average monthly student loan payment is higher than this – $351 – the median monthly student loan payment is just $203.
Many times, factoring in an amount that was different than borrowers’ actual loan payments artificially increased their DTI calculation and disqualified them from getting an affordable home loan with many lenders.
Addressing a growing trend
Fannie Mae announced these rules in response to an obstacle many prospective homebuyers have encountered in recent years. While there are many ways people can balance student loan debt and mortgage payments, it isn’t easy. The National Association of Realtors found that 13 percent of homebuyers in 2016 said saving for a down payment was the hardest part of the homebuying process. Nearly half of these respondents said it was student loans that held them back.
“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” Jonathan Lawless, Fannie Mae’s vice president of customer solutions, explained in a statement. “These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”
While these new rules are designed to aid borrowers, there is always a risk associated with new programs such as these. Some worry that, by changing the DTI formula, lenders won't get an as accurate a picture of a borrower’s actual ability to pay down their mortgage, The Washington Post reported. In reality, these rules will likely be a wonderful help for some borrowers, but not quite the right solution for others. To determine whether any of them are a good option for you, reach out to Academy Mortgage.
Information courtesy of Paige Diamond or Academy Mortgage.
Even though they’re becoming more optimistic about their financial situations, more people who rent their homes are foregoing buying a house.
One in five renters now say they have no interest in ever owning a home, up from 13% in January 2016, according to a report released this week by Freddie Mac. And nearly 60% of current renters expect to rent their next property when they make their next move, up from 55% in September.
This shift toward renting versus buying is occurring despite a relative improvement in the financial situations for many renters: 41% of them say they have enough funds to go beyond each payday, as opposed to living paycheck to paycheck or not having enough money for basic necessities, the highest level since October 2015, Freddie Mac found. Harris Poll surveyed more than 4,000 adults on Freddie Mac’s behalf, of which 1,282 were renters, to help produce the report.
And yet a sizable chunk of people are unhappy with renting. Nearly 40% of people Freddie Mac surveyed were dissatisfied to some extent with their rental experience, with young and urban renters — who are likely to be living in smaller, more expensive spaces — more likely to be displeased.
So why are they not buying? People’s attitudes toward affordability, which cut across generations, is a big factor. “Although their finances are better, renters are comfortable with continuing to rent with many believing renting will be more affordable or stay the same for them in the next 12 months,” Freddie Mac noted.
In particular, rising home values have hurt many would-be homebuyers. A recent report from real-estate website Zillow found that more than two-thirds of renters cite the down payment as the biggest obstacle in home a home. Indeed, it can take more than a typical year’s salary in some markets to be able to afford one.
At the same time, rental markets have stabilized recently. “Rents have been relatively flat over the last year and we don’t expect them to rise much in the next year in most areas,” Svenja Gudell, chief economist at Zillow, said. “That urgency that once existed is not there anymore.”
Affordability is just one factor though — the availability of homes also plays a role. “Even if you were to go out and try to buy a home, inventory is so constrained you’ll have trouble to find one,” Gudell said. “If there’s not much advantage to owning a home versus renting, people will feel comfortable in the decision to continue to rent.”
If you have a moment, we would like to give you a quick breakdown on the importance of changing the air filter in your home’s HVAC system, as well as tell you how often your filter needs to be changed.
But question is: Why is Changing Your Air Filter so Important?
There are a number of different types of filters available on the market, each offering different benefits, but the fact remains that all types of filters need to checked, maintained and changed in order to function properly and safely.
To that end, why is changing your air filter so important?
First of all, a clogged air filter can cause extensive damage to your system. Thus, if you check your air filter’s condition regularly, you ensure the longevity of your system — saving yourself thousands in possible repair and replacement costs. Dirt and neglect are one of the leading causes of heating and cooling systems failing, yet such failure is completely avoidable.
Secondly, changing the air filter in your system ensures cleaner, fresher, healthier air. This is better for everyone in your home, particularly children and the elderly, and most especially for those suffering from allergies and/or asthma. In referring to the latter, a clean air filter means you are not constantly circulating dust, dust mites, pollen and other small particles in the air. Instead, your system will be able to purify the air, leaving it clean and healthy.
Thirdly, aside from protecting the HVAC system from unnecessary damage, cleaning out or changing a clogged air filter will also save you a significant amount on operating costs. In simplest terms, a dirty air filter uses much more energy than a new, clean air filter, which means a much higher electricity bill for you. You can, by keeping your air filter clean and in good condition, save up to 15% on utility costs.
To the above point on energy wastage, failing to clean and replace your air filter on a regular basis is failing the environment. An air filter that is clogged means a harder working HVAC system, thus it also means a lot of carbon monoxide and other greenhouse gasses by extension being released. Going green and running your home in an eco-friendly manner need not necessarily mean bending over backwards and giving up all forms of comfort. Something as simple as changing an air filter regularly can go a long way in making a difference.
Thus, to conclude, changing your HVAC system’s air filter is important in every which way. Economically, health-wise and environmentally it simply makes sense!
To that point, how often should your air filter be changed? It differs depending on the different types of filters, but anywhere between 1 and 3 months is advised, with the former being preferable and the latter being the absolute maximum you should allow between changes.
Mortgage Myth: In the early to mid‑2000s, back before the housing bubble burst, conventional wisdom held that anyone with a pulse could get a mortgage. While that wasn’t accurate, it was true that qualifying for a home mortgage was easier than perhaps it should have been for some people.
Fast‑forward to today, when the pendulum has swung the other way. Guidelines have tightened up, lenders are providing much greater amounts of scrutiny, and products such as “stated income loans” – which didn’t require verification of income – have fallen by the wayside.
This more rigorous lending environment has given rise to a few mortgage myths. Many people now believe that without outstanding credit, a sizable down payment, or minimal debt, they just won’t be able to qualify for a home loan. Not so!
There are a wide range of mortgage programs available to many different buyer circumstances, so don’t count yourself out of landing a mortgage – and a new home – just yet. Here’s a look at three mortgage‑qualifying myths and their corresponding realities.
Mortgage Myth #1: You need excellent credit to get a mortgage
First, find out what your consumer credit score looks like. You can get a free credit report every 12 months from annualcreditreport.com. However, although it can tell you how you’re doing overall, this report won’t include a specific score – getting an actual number will cost you some additional cash. While it won’t be exactly the same as your mortgage FICO score, which lenders use, it will give you an idea if you’re in the right ballpark. (To get your actual mortgage FICO scores, your best bet is to have a mortgage professional pull it for you.)
For reference, many lenders might consider scores in the following way:
Excellent: high 700s or above
Good: low to mid‑700s
Fair: mid‑600s low 700s
Poor: low to mid‑600s
Subpar: below 620
For the best rates and terms you’ll want an excellent score, but you can often qualify for a competitive mortgage if you have a good or fair credit score.
And even if you have poor credit, don’t give up! FHA loans, insured by the Federal Housing Administration, are the top choice for those with less‑than‑sparkling credit histories and are offered by the majority of lenders. The minimum credit score for an FHA loan can be as low as 500, though most of the insured loans require a score of 580. The FHA also offers credit counseling.
Working directly with a lender, even if you have a low credit score, can also help. You may be able to offset a poor score by showing your lender that you’ve paid your rent on time for the past year (or two, depending on the lender), you’ve made all other payments, and you have enough cash saved to keep you afloat for six months’ worth of regular expenses if you need it.
Finally, if you can’t go it alone based on your credit score, there’s one final option: getting a co‑signer. But both you and the co‑signer need to consider this option very carefully, because he or she would be taking on the responsibility to pay the loan if you default.
Mortgage Myth #2: I need a lot of cash for the down payment
While having enough cash on hand to plunk down 20 percent of the purchase price is a great thing to shoot for, it’s not necessary. That magic 20 percent mark does mean you don’t have to pay for private mortgage insurance (PMI) or government‑backed mortgage insurance (an FHA loan), which protects the lender in case you default.
PMI can add a couple hundred dollars a month to your mortgage payment, but that won’t last forever. Once you get 20 percent of the principal paid off, you can ask to have the insurance taken off the loan. Once you get 22 percent paid, the lender must remove it.
FHA loans come in handy here, too – you can put as little as 3.5 percent down. If you’re currently in the armed services, are a veteran, or are an eligible surviving spouse, you can get certain types of VA loans with no cash down.
You can also get a conventional 30‑year mortgage with only 3 percent down backed by Fannie Mae or Freddie Mac. You’ll have to pay PMI and have a credit score of at least 620, along with providing complete documentation of your income, other assets and job status. Homeownership counseling is also required.
Depending on where you live, you might be able to take advantage of down‑payment assistance programs offered by state or local housing authorities, community or not‑for‑profit agencies, or lenders. You’ll have to figure out what you’re eligible for. Some programs are aimed at first‑time homebuyers, or given as assistance to revitalize distressed properties or neighborhoods, or are set aside for people with certain occupations – like firefighters, EMTs, police officers, and teachers – to encourage or allow them to live in the places they serve.
Mortgage Myth #3: I have too much debt to qualify for a loan
Reality: Not necessarily
While you might have a credit card or two, a car loan, and student loans, that might not be too much debt for you to qualify for a mortgage. The only real way to figure that out is to calculate your debt‑to‑income ratio (DTI), which can be as important to a lender as your credit score.
To figure out your DTI, add up what you pay for your current mortgage or rent, car payments, minimum credit card payments, student loans, child support and any other loan obligations. Take the total of your recurring monthly debts and divide by your gross monthly income to arrive at your DTI. The more you make every month, the more debt you can afford to carry.
If your monthly debts are $1,500 per month and your gross monthly income is $6,000, your DTI is 25 percent. When calculating your DTI, a lender will also add in things like property taxes that will come with a new home that add on to regularly recurring debt.
A DTI of 28 and below is considered outstanding, but you can qualify for a conventional or VA mortgage if your monthly debt payments are under 45 percent of your gross income. Not there? Consider an FHA loan, which wants your ceiling to be below 57 percent.
You can see the truth about these myths is that any one of these situations won’t necessarily stop you from getting a mortgage. So maybe you have a high DTI, but you can afford a 20 percent or more down payment and your credit score is excellent. Your mortgage professional can probably find a product that’s right for you.
And as always, the best way to debunk mortgage myths is to talk to a mortgage advisor, who can cut through the confusion and get you real answers.