The Fair Housing Authority (FHA) recently reported that more than 26% of mortgage borrowers who used FHA-insured loans got assistance from their parents or relatives in order to make a down payment during the 12 months through September 2018. In 2011, 22% of FHA mortgage borrowers had assistance from parents and/or relatives to make their down payments.
FHA buyers make up about 1/16 of total home-loan originations. On average, FHA buyers put down approximately 3.5% of their home’s purchase price for their down payment whereas “conventional” buyers put down approximately 20%. And FHA buyers are typically first-time buyers who often have weaker credit profiles that impede their ability to obtain loans.
Despite home price growth slowing, affordability concerns continue to plague first-time buyers. Buying is simply more expensive than it was even at the beginning of 2018 due to continued y/y rising home prices and rising mortgage interest rates. Homeowner percentages for those under 35 years old tell the story loud and clear…those percentage rates have fallen to 35% from 2004 – 2017, according to Freddie Mac.
How do lenders view the nearly 39% of FHA first-time buyers who get help from their parents/families for their down payments? “Riskier. “ They have less in the game and therefore less to lose if things go south in their lives.
And, in 2018, the average “helped” first-time buyer had monthly debt equaling 43% of her/his income with an average credit score of 670, according to Experian. (Experian considers a credit score under 670 to be sub-prime.) Most experts agree that a 35% debt –to-income ratio is much preferred than a 43% ratio.