Ellie Mae: Millennials flock to FHA loans as credit tightens
Generation showing preference to FHA-backed mortgages
Millennial homeownership continues to be a problem as many are not interested in buying homes, and others are not able to. The good news? There’s a light at the end of the tunnel.
Millennial homeownership is actually on the decline, down 0.7 percentage points to 34.1%, according to the latest information from the U.S. Census Bureau.
Despite uncertainties such as rapidly rising home prices, many surveyed households still believe now is a good time to buy a home, according to the National Association of Realtors. The one demographic that doesn’t agree? Millennials.
Actually, Millennials are less concerned about buying a home before interest rates increase, and more concerned that they won’t be able to find a home they want, according to a report from Trulia.
There is, however, good news for Millennial homebuyers who do step into homeownership.
A study conducted by Genworth Mortgage Insurance at the 2016 Mortgage Bankers Association Secondary Conference in New York City showed that, while Millennials delayed homeownership longer than other generations, the industry expects that they are about to move into the housing market.
The average credit score for Millennials who closed on a mortgage continues to increase, according to the most-recent Ellie Mae Millennial Tracker, an interactive online tool that provides access to demographic data about this new generation of homebuyers.
The average FICO score of Millennial borrowers who closed on a mortgage in June rose to 723, up from 722 in May and 721 in April. The FICO mortgage score is between 300 and 850. Higher scores indicate lower credit risk.
Credit scores, along with saving for a down payment, are considered a stumbling block for first-time buyers, according to a survey by TransUnion.
But is it good news? Or, conversely, does it just show a tightening of credit, which could be locking Millennials out of the housing market.
For the third month in a row, FHA made up 37% of closed loans in June among Millennial homebuyers. This is compared to 60% of Millennials who used conventional loans.
“Economic uncertainty may be contributing to a general tightening of credit, which could explain why we are seeing a slight uptick in the average FICO scores for closed loans to Millennials,” said Joe Tyrrell, Ellie Mae executive vice president of corporate strategy.
“We also continue to see FHA loans play a significant role in helping millennials make their homeownership dreams a reality,” Tyrell said. “These types of loans make up 37% of all closed loans to this generation, compared to just 23% of closed loans across all generations of homebuyers.” The Federal Housing Administration is a United States government agency that insures loans made by banks and other private lenders for home purchases.
As for the rest of the mortgage market, not much changed from recent memory. Besides the slight increase in credit scores, much of the other information in the Ellie Mae report reported unchanged conditions from last month’s report.