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Chrisman's Corner: Renters Face Uphill Battle in Housing Financing

Our brokers know that obtaining financing for a home has never been costlier. Obtaining conventional financing through Fannie or Freddie is expensive, and recently the National Association of Realtors (NAR) argued that higher mortgage insurance premiums at the FHA have priced out scores of renters nationwide. FHA financing, however, is generally regarded as the least expensive option by many of JMAC’s brokers for those with little set aside for down payment, so the increase in premiums is shutting the only door to financing for this group.

According to NAR, the average renter only had $12,568 in savings last year. Unfortunately, the median-priced home in 2013 was $197,400. When you throw in another three percent for closing costs, a renter’s median household savings only allow for FHA financing with the minimum 3.5% down. That would set a renter back about $12,624, which slightly exceeds their total savings. But it’s a lot closer than any other option. A five percent down payment plus closing costs requires $15,496, a 10% down payment + CC calls for $25,070, and the classic 20% down requires a whopping $44,218.

JMAC’s experienced brokers know, that it is possible, however, to receive a gift for the down payment and/or closing costs, or to accept a higher mortgage rate in exchange for a lender credit to cover closing costs. But most just don’t have enough money set aside to purchase a home, especially without FHA financing. This is further exacerbated by the fact that mortgage insurance premiums on FHA loans have surged in recent years, and the 3% down payment mortgage (Conventional 97 loan) has pretty much gone away.

In areas where supply is low and demand is strong, it’s pretty tough for a renter with limited assets to purchase a home. If a borrower must rely upon FHA financing, they are often outbid by another buyer who has more assets socked away and thus writes a more attractive offer. Therefore, a borrower’s best plan is to confer with a licensed broker to determine the best “plan of attack” and loan program available!