Debt & Toughened Mortgage Rate Standards Lead To Young Adults Needing Help To Buy First Home
A recent article in the Los Angeles Times, reported that it’s getting increasingly harder for home buyers in their 20s and 30s to purchase their first property and many may need help to buy first home. “Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession, plus newly toughened mortgage underwriting standards are all standing in the way of vast numbers of potential first-time home buyers in their 20s and 30s.”
The numbers are staggering. “Typically they’re already paying out large amounts on credit cards, auto loans or leases and their student debt — about 30% of current monthly income for those ages 21 to 30 as of 2012, according to a new research report from research economist Gay Cororaton of the National Assn. of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60%, Cororaton estimates. Even with a 5% increase in income per year, they will not be able to qualify under the 43% debt-to-income test until 2019.”
The good news? All is not lost. “…there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering help to buy first home — without hurting their own finances in the process…”
The most popular is gifting. “Growing numbers of relatives are stepping in with gift money to help defray the down payment and closing costs — 27% of first-time buyers last year, according to one industry estimate.”
But the new trend is not actually gifting the money, but treating it as a loan. “Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves. With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles — including paying off student loans to reduce debt-to-income ratios — their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.”
So if you are a first time homebuyer and need help to buy first home, all hope is not lost. There are options available designed to help you meet the new underwriting standards and get you well on your way to buying your new home.
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