While the peak home buying season is behind us, it’s always a good time to consider homeownership when armed with the right information and financial tools. In fact, a new public opinion survey about the housing market from NeighborWorks America found that the overwhelming majority of people in the country see homeownership as an important part of the American Dream, an aspiration with which I couldn’t agree more. But in recent years, the national homeownership rate has been dropping, and in many of the communities where Neighborhood Partnership Housing Services (NPHS) is working, not as many first-time home buyers are entering the market, including Millennials (adults aged 18 to 34 years).
I believe that the foreclosure crisis is a principal contributor to the decline in homeownership and for the tentativeness of first-time buyers, but other forces are at work too. The NeighborWorks America survey and intelligence from our own Millennial Advisory Committee (MAC), tell us some of these key factors holding back home buying among first-timers are: confusion about the impact student loan debt has on qualifying for a mortgage, uncertainty about the complexity of the mortgage process, low savings rates due to the high cost of rent, and too little information about financial help getting to the people who could benefit. NPHS and other nonprofit housing organizations are able to assist in addressing most of these misconceptions to homeownership.
Take student loan debt. More than half of the people who hold student loan debt see that debt as an obstacle to homeownership, according to the NeighborWorks survey. With total student outstanding loan debt surpassing $1 trillion at the end of 2014, Millennials are concerned that their outstanding student loans might cause financial difficulties managing their debt. Making monthly student loan payments does take away from the amount of money a person could put against a mortgage, but there are ways to safely manage both obligations and to take the first step towards successful homeownership.
A great way to begin is with a budget. Various surveys and experts point out that two-thirds of people don’t have a budget. Additionally, a recent White House study on Millennials indicates that 67% of those under age 30 have credit scores below 680 – a challenge for obtaining mortgage credit. NPHS has a Financial Wellness program in place that works one-on-one with consumers to identify financial goals that leads to establishing a budget to develop a plan for paying down debt, improving credit and buying a home.
The home buying process is complex, according to 70 percent of adults in the NeighborWorks America survey. But as with most complicated things, education bridges the gap. NPHS offers Homebuyer Education classes that are especially designed for first-time homebuyers who are serious about taking control of the home buying process and want to be prepared to make the right decisions. As a HUD-approved counseling agency, this 8-hour course fulfills the education requirements for certain loan and assistance programs. Most recently, NPHS has seen an increase in attendance to these classes by Millennials in their thirties seeking information on the home buying process.
One area that I know we could do better is educating those former homeowners who lost their homes to foreclosure about when it’s safe and reasonable to get back into the market. More than half of consumers in the NeighborWorks poll either had no idea or said that it took more than five years before someone who lost their home to foreclosure could qualify for a prime mortgage. Generally, the answer is only two years. To energize the home buying market safely we need to improve the quality of information available. Too many people – approximately two-thirds – said that they are likely to get information about homeownership from their friends and family. I know that they mean well, but the mortgage market is continually shifting. The best strategy is to seek quality information from a HUD-approved housing counselor.
Finally, to safely encourage the first-time homebuyer, more education is needed about down payment assistance programs for middle-income homebuyers. The NeighborWorks survey found that 67 percent of consumers are either unsure or said that there weren’t any programs like this in their community. According to the website, Down Payment Resource, there are more than 2,400 down payment programs throughout the country for which most middle-income buyers would qualify for. In fact, NPHS administers various down payment assistance loan and grant programs, helping first-time low- to moderate-income homebuyers access over $2.7 million in assistance during the 2015 Fiscal Year.
This down payment assistance could reduce the amount of mortgage needed to buy a home, lowering the monthly payment and bridging the affordability gap due to student loan payments, or inadequate savings from the high cost of rent.
The fact is most people are still pursuing homeownership as part of the American Dream. With the foreclosure crisis still resonating with many, our task is to encourage and educate potential home owners to enter the market safely and responsibly. The good news is that there are many resources and information available to first-time home buyers, and they don’t need to pursue the journey alone with the assistance of HUD-approved counseling agencies trained to help demystify the home buying process.