Overall, first-time home buyers have been less prevalent from the housing recovery, representing less than a third of all buyers each month for the past two years, according to the National Association of Realtors (NAR). The scarcity of the group has pushed down the U.S. homeownership rate, which dropped in the second quarter to its lowest level since 1995, according to U.S. Census Bureau data.
The group, a majority of which are millennials, faces a massive amount of student loan debt and the ability to come up with enough cash for a down payment. However, mortgage insurers (MI), like Milwaukee -based MGIC, can help first-time buyers tackle some of these challenges.
The oldest MI provides education and a bevy of programs that cater to the group. MGIC accepts gifts to fund down payments, grants and offers 97% loan-to-value (LTV) products. The insurer also works closely with Fannie Mae and Freddie Mac, which announced recently plans to restore a program that allows them to guarantee loans with 3% down payments.
“We are happy they are coming back with 97% LTVs, but it’s hard to gage what kind of impact it will have on our industry because we don’t know what the parameters are yet,” said Sal Miosi, vice president of marketing at MGIC. “But, I hope we will know the parameters soon.”
Fannie Mae backed away from 97% LTV mortgages last year and Freddie Mac several years earlier. MGIC has continued to offer the product throughout the housing crisis. “We never took it off the table,” he added. “I think that puts us in great shape when Fannie and Freddie reintroduce the product because we insure the product today - we understand the risk and how to market it to first time home buyers”.”
MGIC, the principal subsidiary of MGIC Investment Corp., has $162.4 billion primary insurance in force covering approximately one million mortgages as of the end of September. The MI protects mortgage investors from credit losses, helping consumers obtain homeownership with lower down payments.
Millennials, a well-versed group, can text with their eyes shut, multi-task all day long and somehow keep in touch with everyone they’ve ever met. But when it comes to getting home loan
s, they’re woefully in the dark about their options, which is why so many of them continue to rent rather than buy, said Shelley Callaghan, senior marketing program manager at MGIC
However, the group accounted for 76% of first-time home buyers last year, according to NAR’s 2014 Home Buyer and Seller Generational Trends report. Overall, millennials made up 31% of home buyers – more than other generation.
Callaghan said a widely held perception is that prospective homeowners seeking mortgages must have spotless credit and a significant chunk of change for a down payment. A belief that discourages young, would-be homebuyers from purchasing their first homes.
Miosi echoed Callaghan’s sentiments, adding “We’ve got to get beyond some of the myths about what’s not available and what is available,” he said. “The most common one is 20% down or FHA
insurance is required to purchase a home. I am not suggesting that saving 20% for a down payment is a bad idea, but that’s a huge hurdle for many first-time homebuyers. It would take many years for them to save that much.”
Miosi said by educating lenders and realtors about how to work with first-time home buyers, they can get rid of common misconceptions. “Private MI can be a faster route to homeownership. It’s important that borrowers know they have options besides FHA
. The FHA
plays a vital role, but private mortgage insurance can often save borrowers money and while offering them program plans with greater flexibility.”
MGIC offers Fannie- and Freddie-approved to homebuyers that loan officers can direct their clients to. The MI also offers live training and webinars to loan officers and realtors.
First-time home buyers are crucial to the housing recovery as they allow existing homeowners to move out of their starter homes and keep the real estate cycle going. However, they are also one of the groups having the toughest time buying houses in today’s tight-credit market.