MReport Jan 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 41 of 67

40 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION To Their Credit LendingTree weighs in on how much credit scores matter in their latest report. C redit scores are get- ting more important as mortgage rates rise and those with a higher credit score will save more, ac- cording to LendingTree's latest Mortgage Offers Report. The report revealed that consumers with the highest credit scores (760-plus) received an average annual percentage rate (APR) of 5.12 percent, versus 5.42 percent for consumers with scores of 680 to 719. The APR spread of 30 basis points between these score ranges remained unchanged from September. "For the average purchase loan amount of $233,938, the spread represents over $15,000 in additional costs for borrowers with lower credit scores over 30 years. The additional costs result from higher interest rates, larger fees or a combination of the two," the report said. October's best mortgage of- fers for borrowers with the best profiles, that are defined by LendingTree as the 95th percentile of borrowers had an average APR of 4.61 percent for conforming 30- year fixed-rate purchase loans, up from 4.39 percent in September. However, for the average bor- rower, the report found that the purchase APR for conforming 30-year fixed-rate loans was 5.27 percent, up by 18 basis points from September. It revealed that the loan note rate for these borrowers at 5.14 percent was the highest rate of the year. Down payments also declined over September with the average proposed down payment falling by about $3,600 to $60,361. The APR on refinance loan offers also saw an increase of 22 basis points in October to 4.62 percent for borrowers with the best profiles, while the APR for conforming 30-year fixed refi- nance loans increased by 17 basis points to 5.26 percent. The report found that the spread between credit score brackets of 760-plus and 680 to 719 remained un- changed at 24 basis points, which would result in nearly $13,000 in extra costs over the life of the loan for borrowers with lower credit scores, given an average refinance loan of $238,447. For borrowers shopping around for the best loan rates, LendingTree found that homebuyers could have seen a median lifetime savings of $29,369 in interest on a $300,000 loan by comparison shopping for the best mortgage rates. The Debt Impacting Home Purchasing Power With student debt reaching a record level this year, prospective homebuyers are finding it harder to save for a down payment. F or the average student debt holder, their home purchasing power is about $92,440 lower than home shoppers who are not car- rying student debt, according to research from Zillow. Student debt reached a record $1.56 trillion in the third quarter of this year, and according to Zillow about a third, 33.9 percent to be precise, of renting households planning to purchase a home in the next year have student debt. Among renters with student debt, the average monthly debt payment is $388, according to the research released. Based on metro-level me- dian incomes and home values alongside average student debt obligations, Zillow estimated that renters with student debt could afford about 52.3 percent of today's housing stock without spending more than 30 percent of their in- come combined on mortgage and student debt payments. Those free from student debt can afford 66.4 percent of homes. Concerning home prices, renters paying off student debt can afford homes priced up to $269,400, while those without student debt can afford a home priced at $361,800 or lower. Additionally, Zillow noted, "Even before it limits the number and price of the homes renters can afford, student debt makes it harder to set aside money for a down payment, which is one of the top barriers to homeownership in the eyes of renters." When examining the impact of student debt at the metro level, Zillow found it was most detri- mental to home purchasers in Las Vegas, where renters with student debt can afford 29.3 percent of homes for sale, on average, while renters without student debt can afford 57 percent of homes cur- rently for sale. On the other hand, student debt made the smallest difference in purchasing power in San Jose, California, where affordability is pretty low for all renters. Here, renters with student debt can afford 11.7 percent of homes, while renters with no student debt can afford 18.7 percent of homes for sale. Among the significant metros observed, local student debt hold- ers can afford the highest percent- age of homes in Cleveland, Ohio. In this metro, an average renter carrying student debt can afford 69.8 percent of homes currently listed for sale. At the other end of the spec- trum, student debt holders cur- rently renting in the Los Angeles metro can afford just 6.3 percent of homes for sale in their area. "Higher education pays off when it comes to lifetime earnings and the long-term odds of homeowner- ship, but carrying any kind of debt limits how much home buyers can afford," said Aaron Terrazas, Senior Economist at Zillow. Terrazas also pointed out that, "With for-sale supply still tight- est for the most affordable homes but increasingly available at higher prices, even a small reduction in a buyer's target price point can result in substantially fewer options."

Articles in this issue

Archives of this issue

view archives of TheMReport - MReport Jan 2019