TheMReport — News and strategies for the evolving mortgage marketplace.
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28 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT non-Mortgage debt Weighing on Homeownership Lowering down payment requirements doesn't make homeownership any more affordable for those laden with debt. W hile lowering the down payment on a mortgage may clear one major hurdle to homeownership, a report released by RealtyTrac reveals a monthly mortgage payment is affordable to those with additional non-mortgage debt in less than half of the counties in the United States. In an analysis of housing af- fordability in 512 U.S. counties with a combined population of 235 million, RealtyTrac discovered that lowering the down payment for a conventional mortgage loan from 20 percent to 3 percent, as has been discussed recently by Federal Housing Finance Agency Director Mel Watt, would still not translate to housing affordability for a majority of those with non- mortgage debt such as student loans or a car payment. "While lower down payments may help pave a quicker path to homeownership for some prospective homebuyers, a big- ger obstacle to homeownership is the additional non-mortgage debt many borrowers bring to the table," said Daren Blomquist, VP at RealtyTrac. "For borrowers without additional debt, monthly house payments are affordable in more than 90 percent of U.S. housing markets—whether they make a 20-percent or 3-percent down payment. But for borrowers with the additional debt burden of student loans and car pay- ments, monthly house payments are affordable in less than half of U.S. housing markets with a 3-percent down payment." RealtyTrac found that it would take an average of less than two years to save up for a 3-percent down payment on a mortgage loan compared to 12 and a half years to save up for a 20-percent down payment at an annual sav- ings rate of 5.6 percent (as reported by the St. Louis Federal Reserve). However, once the down payment hurdle is cleared, making the monthly mortgage payment becomes a problem for those with additional debt. RealtyTrac's study found that for those without addi- tional debt, the monthly mortgage payment was still affordable in 92 percent of county housing markets even with just a 3-percent down payment. But for those with an average monthly car payment and an average monthly student loan payment, RealtyTrac found that the monthly mortgage payment was affordable in only 48 percent of county housing markets when a 3-percent down payment was made. The percentage of borrowers in county housing markets who can afford the monthly mortgage payment jumps from 48 percent to 78 percent for those with an aver- age car payment and an average student loan payment when they make a 20 percent down payment, according to RealtyTrac. For those without additional debt who make a 20 percent down payment, hous- ing was affordable in 96 percent of county housing markets. The average car payment was $471 as of Q 4 2013, according to Experian Automotive, and the average student loan payment was $321 for 2012 college gradu- ates with an average student loan debt of $29,400, according to Project on Student Loan Debt. RealtyTrac says there are more than 2,300 down payment and closing cost assistance programs available nationwide, and 60 to 80 percent of homes in most areas would qualify for assistance from one of these programs, accord- ing to Down Payment Resource. RealtyTrac found the average amount of assistance from these programs is $19,720, and could be as high as $50,000 to $100,000 in some high-cost areas. "The narrative is that it's too hard to get a loan today, and when first-time buyers believe that, they won't even begin their search. That hurts the overall housing mar- ket," said Rob Chrane at Down Payment Resource. "Consumers for the most part have no idea that these programs exist, so they don't think to ask for them. Whatever your situation is, whatever you have for a down payment, you could be in a much better situation if you find out you are eligible for one of these programs."