Finding ways to help young adults make their first home purchases

Tough new underwriting standards stand in the way of many potential buyers in their 20s and 30s, but growing numbers of friends and relatives are stepping in to help.

By Kenneth R. Harney | Los Angeles TimesWASHINGTON — 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.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand — without hurting their own finances in the process? You bet.

First, some sobering numbers:

•Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 in 2012 — those born between 1978 and 1982 — had the lowest homeownership rate of any similarly aged group in recent decades, 47.9%. By contrast, Americans born between 1948 and 1957 had a 57.1% ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

•Debt-payment-to-income ratios increasingly are mortgage application killers for would-be first-timers. Adoption nationwide last month of a new federal 43% maximum debt-to-income ratio for "qualified mortgages" is particularly poorly timed for young buyers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43% standard for years.

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.

That's a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they're able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: 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.

Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43% mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important.

Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to be a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; and the source of the funds and the capacity of the gift giver to provide the money need to be documented. For down-payment help outside the family tree, check out http://www.downpaymentresource.com.

But an increasingly important and fast-growing resource is turning the gift concept on its head: 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.

The largest player in the field, National Family Mortgage (www.nationalfamilymortgage.com), has structured and serviced more than $155 million of intra-family transactions in the last two years and is on track, according to founder and Chief Executive Tim Burke, to do $150 million in volume during 2014.

"There is a lot going on" in this field that can help entry-level buyers strapped with student-loan debt, Burke says.

Distributed by Washington Post Writers Group.

Copyright © 2014, Los Angeles Times

http://www.latimes.com/business/realestate/la-fi-harney-20140216,0,7652846.story#ixzz2timBpjU1

FNC Index: U.S. Home Prices Up 0.4 Percent in March

The latest FNC Residential Price Index™ (RPI) shows the U.S. housing market continued to recover, recording in March the 13th consecutive price increase. In recent months, the ongoing housing recovery has maintained its pace with steady and persistent gains in home prices despite signs of continued job market weakness and soft economic growth.

Low interest rates continue to be a key driver of rising housing demand. The market is also gaining momentum on signs of improved credit and more availability of leverage as mortgage lenders continue to experience rising profits. Foreclosure inventory continues to drop, with distressed sales contributing only 18 percent to total home sales, down from 24.5% a year ago.

Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that March home prices rose 0.4 percent from the previous month, and were up 5.5 percent from a year ago. On a quarterly basis, home prices rose 0.7 percent during the first quarter. When compared to the same quarter in 2012, the quarterly price gain was 5.7 percent. The two narrower composite indices (30-MSA and 10-MSA composites) show similar month-over-month increases but faster year-over-year accelerations at 6.7 percent and 7.4 percent, respectively.

FNC’s RPI is the mortgage industry’s first hedonic price index built on a comprehensive database that blends public records of residential sales prices with real-time appraisals of property and neighborhood attributes. As a gauge of underlying home values, the RPI excludes sales of foreclosed homes, which are frequently sold with large price discounts reflecting poor property conditions.
Twenty-two of the component markets tracked by the FNC 30-MSA composite index show higher prices in March. Most notably, home prices in Phoenix continue to accelerate rapidly even after rising at a rate of 2.1 percent per month for 13 straight months. The city’s foreclosure activities have dropped rapidly, with foreclosure sales accounting for only 11.2 percent of total home sales–the lowest since 2007.
Amid widening signs of a sustained housing recovery, a number of the nation’s major housing markets continue to show lagging performance. Among them, Chicago, Baltimore, St. Louis, Cleveland, and San Antonio experienced only a small price gain in the last 12 months. On a quarterly basis, home prices weakened between Q4 2012 and Q1 2013 in Chicago, Portland, Baltimore, Minneapolis, Houston, and St. Louis, despite that these market all seem to have turned the corner toward recovery.

Housing is in Bloom

The nation's housing sector is buzzing like bees in springtime. And indeed, housing has historically boosted the U.S. Gross Domestic Product (GDP) and job creation, which are key stimulators and indicators of economic health. 

When GDP is referenced in news media, it means the total goods and services produced by labor and property in the U.S. This figure is measured quarterly, and recent figures show that GDP increased impressively at 3.1 percent in the 1st quarter of 2013, up from 0.4 percent in the last quarter of 2012. 

Sales of previously-owned houses increased three straight months in March, rising 0.4 percent to a 5 million annualized rate, its highest level since late 2009, then took a small dip in late April by 0.6 percent to 4.92 million units. During this time, new home sales maintained an upward climb by 1.5 percent within expectations to 416,000. Analysts say housing could provide tailwinds strong enough to realize the improvement to the labor market for which the folks at the Fed are hoping. The Fed (which sets the U.S. monetary policy by monitoring national employment, prices and interest rates) recently noted that inflation also remains in check. 

Homebuilders across the nation have contributed to the increase in Housing Starts, up a whopping 47 percent over the same period last year. At their highest since June 2008, Housing Starts spiked by 7 percent this March to 1.036 million units on an annualized basis, well above the 930,000 expected, though they did decline in April. Gains in home prices and construction will put more Americans to work this year, and that's good news overall for the health of the U.S. economy.

5 Housing Trends for Spring 2013

The game is changing in the real estate market, and things are looking good for everyone. Low mortgage rates and home prices gaining momentum, and the amount of buyers is supposed to increase this Spring.

This Spring expect to see these housing trends:

1. Fewer options, Higher prices & Bidding Wars
Expect some competition this coming Spring, demand from home buyers is growing faster than the supply of homes for sale, according to the National Association of Realtors. Expect to see multiple offers on the table which means bidding wars. In February there were 1.94 million homes for sale nationwide. That represents a supply of 4.7 months at that months pace. A balanced market requires about 6 months of supply. During the same period last year there was a supply of 6.4 months.

2. Loan Modifications Made Easier- for most
Homeowners behind on their mortgage payments may get the opportunity to reduce their monthly payments. The Federal Housing Finance Agency will require mortgage servicers to offer a streamlined modification program to borrowers with loans owned or guaranteed by Fannie Mae and Freddie Mac, starting July. The offers will be sent to home owners who are at least 90 days behind on their loans but no more than two years behind. The modification reduces the loans interest rate and extends the loan term to 40 years. Minimal paperwork is expected, borrowers wont be required to submit nay financial documentation to the lender to get approved. The loan modification becomes permanent after 3 three payments are made during the three-month trial period.

3. FHA Loans lose appeal again
Borrowers seeking low-payment mortgages will be charged for mortgage insurance for the life of their loans if they don't get their Federal Housing Administration mortgages by June 2. The FHA currently requires borrowers to pay for mortgage insurance on FHA loans until the balance reaches 78% of the original value of the home.

4. Equity Loans & Cash-out refis 
1.7 million homeowners regained equity in their homes last year, and an additional 1.8 million are close to it. All they need is home values to go up by another 5%. As home prices rise millions of homeowners might consider turning to their homes as a potential source for a loan. Cash-out refinances and home equity loans, which were popular during the housing boom, are slowly returning, along with the temptation to tap into equity.

5. Mortgage Rates Remaining Low 
Mortgage rates are expected to creep up this Spring but should remain low. The mortgage Bankers Association estimates the 30-year fixed rate will reach 3.9% by the end of the first quarter of this year.

What NOT to do When Uncluttering Your Home

Are you guys enjoying the warm weather this weekend? Well if you are left with out any plans this weekend its the perfect opportunity to do some Spring cleaning and decluttering. Turn on some music and get the whole family involved, this way they can begin to make their own good organization habits. Start by picking one room in the house or one area to focus on... then before you start take a quick look at what NOT to do while you unclutter... good luck

1. Organize First; Buy Second. Do not go out and buy a ton of storage pieces and supplies before you sort through your home. All of those pretty bins, boxes and baskets at The Container Store are very enticing, but they won't do you any good unless they fit the space (on the shelf, under the bed, in the closet); hold what you need them to hold, and function properly for your particular space. I recommend cleaning out first, assessing what containers you REALLY need, and then buying a few bins to start. You can always add later, but theirs nothing worse than having a bunch of empty containers cluttering up your home while you figure out where you might use them.

2. Don't Bite Off More Than You Can Chew. Do not set aside an ENTIRE day to organize your WHOLE house. Very few people have the energy and/or focus to spend 8 hours organizing. You'll likely become frustrated and less efficient as the day progresses. It's much better to spend a few hours -- 2 or 3 -- on one project or space. This way you'll feel motivated to do more, not burned out by the process.

3. Complete Each Task -- Completely. Of course you will need to sort things into categories (e.g., toss, recycle, donate, give to friend, put in deep storage). But here's the crucial part: Once you have decided where something is going to go -- take it there. Never keep bags for charity or boxes for friends in your home to deliver later. Do it now. Finish the process. Take the bags and boxes out to the trash or recycling immediately. If you're donating something or giving something to a friend or family member, put the items in your car or make arrangements for dropping them off. You've done so much work getting this stuff ready to take out, complete the deal!

4. Rome Wasn't Built In A Day. Do not think that once you've organized your space, that you are done. You'll feel like a failure when you have to clean it up again in a month. Realize that while you have created a new, efficient, and logical system for processing and managing incoming and outgoing items, you are not done. There is no autopilot. You should expect regular upkeep, but just be glad that the new system is far more efficient than the old one.

5. Good Enough is Enough. Very few people have closets and drawers that resemble those in catalogues. Trust me. I've been in a lot of houses and apartments and even after we've totally reorganized a space, it doesn't look like an ad for The Container Store. It looks great and works properly, but it is a space that is used by an actual human being, not one that has been carefully staged by a team of stylists and marketers for a non-existent resident. You will ultimately be disappointed if perfection is your goal. The goal is to set up a space that works well for your needs. That is success.