Millennials in Seattle and across the U.S. are accounting for an ever-increasing share of the mortgage market, and many of them are using FHA-insured home loans to buy a house. This is based on a recent report from Ellie Mae, a mortgage industry software company.
According to the latest Ellie Mae Millennial Tracker™ report, the number of mortgage loans for millennials purchasing new homes rose again in January 2017, reaching 84% of all closed loans within that category.
FHA loans, in particular, remain attractive to millennial borrowers. Home loans insured by the Federal Housing Administration accounted for 35% of all closed loans in January.
Why Do Seattle Millennials Like FHA Loans?
FHA loans certainly aren’t the only financing option available to millennial home buyers in the Seattle area. But they are one of the most popular options. The report cited above is evidence of this. The FHA loan program has been around since the 1930s, and it offers several distinct benefits for borrowers.
Here’s what makes them popular among millennials:
Low down payment: Seattle-area home buyers who use an FHA loan can make a down payment as low as 3.5% of the purchase price or appraised value, whichever is less. Conventional mortgage loans sometimes require larger down payments. This makes the FHA program appealing to Seattle millennials with limited funds saved for a down payment.
Assumable: Millennials tend to move and relocate more often than older Americans. As a result, these younger buyers are often concerned about resale potential. Having an FHA loan could actually work to your advantage down the road, if you decide to sell your home. These mortgage loans are assumable, which means the buyer can take over the homeowner’s mortgage payments. This is a plus when trying to market and sell a home.
Flexible criteria: FHA loans can be a bit more “forgiving” when compared to other mortgage programs. Borrowers with relatively low credit scores and/or shorter credit histories tend to have an easier time getting approved for the FHA program. And it shows statistically: According to the Ellie Mae report cited above: “For purchases, the average FICO [credit] score was 748 for a conventional loan, 690 for an FHA loan and 734 for a VA loan.” *
* Note: You don’t necessarily need a credit score of 690 to qualify for an FHA loan. The numbers above are just averages across all closed loans. According to the Department of Housing and Urban Development, borrowers with a credit score of 580 or higher can qualify for the 3.5% down payment on an FHA loan.
Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae, pointed to some of these benefits in the company’s recent report. “It is not surprising to see millennial borrowers leverage FHA loans,” he said, “because they typically offer lower down payments and lower average FICO score requirements than conventional loans.”
FHA loans are just one of many mortgage options available to Seattle home buyers. To learn more about this and other options, check out our guide to the different loan types.