Homebuyers who are making an offer using FHA financing (9.6% of applications for week ending July 16, 20211) or VA financing (10.5% of applications for week ending July 16, 20211) are finding it difficult to compete against buyers who are financing using a conventional loan or offering all cash (23% of existing home sales in May 20212).
Why this is happening is a matter of debate. In March 2021, the average time to close a conventional purchase loan is about 7 days quicker (49 days) than an FHA purchase loan (54 days) and a VA purchase loan (56 days). FHA and VA loans also have stricter home inspection requirements. Additionally, FHA and VA have a reputation for receiving lower appraisals and longer turn times (7 to 21 days depending on the state), which is problematic when home prices are rising fast (median existing-home sales price increased 24% year-over-year in May 2021) and selling swiftly (average 17 days on the market).
Homebuyers making an all-cash offer have the biggest advantage as they have the flexibility to waive both appraisals and inspections, which can appeal to sellers looking to get to the closing table fast. Homebuyers financing with a conventional or FHA loan can also forego an inspection, although that’s not a wise decision for first-time homebuyers.
Unfortunately, these factors primarily disadvantage homebuyers with lower incomes, lower credit scores, and less wealth, further decreasing the homeownership opportunities for low-to-moderate-income consumers.
How can you help your homebuyers compete? Many homebuyers still think they need a 20% down payment to qualify for a home loan. What many don’t realize is that they can make the same down payment for a conventional loan as an FHA loan if they have a good credit score. However, if they’re not connected with an originator, they don’t get educated on these opportunities.
The Home Affordability Calculator is one of the most popular features in the FinLocker app. Analyzing the consumer’s consumer-permissioned financial data, the calculator provides homebuyers with a home buying budget and lets them compare the monthly mortgage payment for Conventional, FHA, and VA home loans based on their income. They can take that information, create a goal and budget to save for their costs-to-close, and monitor their progress in real-time using the Readiness Assessment.
If you’d like to see how the tools and resources in the enhanced FinLocker app will get more of your homebuyers mortgage-ready, watch an online demo or schedule a live demo.
1 Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 16, 2021
2 National Association of Realtors Existing Home Sales, June 2021
3 ICE Mortgage Technology Origination Insight Report, March 2021
