Recasting or making a lump sum payment on your mortgage loan has its advantages and disadvantages. But there are certain instances where making a lump sum payment on your mortgage just makes sense.
Summary: Lately, millennials in Washington State and across the country have been choosing conventional home loans more than FHA-insured mortgage loans. This article will explain why.
A recent industry report showed that the majority of all closed loans by millennial borrowers are conventional (or non-FHA) mortgages. That was the highest percentage in two years, signaling a temporary shift in loan preference among this age group.
Most Washington Millennials Choose Conventional Loans
We’ll get back to those statistics in a moment. But first, a terminology refresher.
- Conventional: A conventional mortgage loan is one that is originated within the private sector without government insurance or backing. Conventional mortgages are not part of any government program.
- FHA: In contrast, an FHA loan is insured by the government, through the Federal Housing Administration that falls under HUD. This insurance protects lenders from default-related losses. This program has been helping home buyers since the 1930s.
The mortgage software company Ellie Mae maintains a “Millennial Tracker” that monitors home loan trends for this particular demographic. For tracking purposes, they define a millennial as people born between the years of 1980 and 1999.
The company’s latest report revealed that roughly three-quarters of millennials (74%) who took out a mortgage to buy a house in January 2019 opted for a conventional loan, as opposed to using the FHA program. Compare that to 21% of millennials who took out an FHA loan to make a home purchase, and 2% for VA loans.
Related: Millennials and student loan debt
So Why the Shift?
In the past, the FHA program was more widely used among home buyers in this particular age group. The Federal Housing Administration’s mortgage insurance program offers some noteworthy benefits for borrowers, including a relatively low down payment (3.5) and flexible qualification criteria.
Lately, however, it appears that more millennials in Washington State and nationwide are turning to conventional home loans. Of course, this trend could reverse itself in the months ahead.
The reasons for this recent shift are unclear. A senior executive with Ellie Mae suspects it might be because the requirements for a conventional loan have eased over the years, allowing more millennial borrowers to qualify for financing.
“Historically we have seen Millennials look to FHA programs to help address their homebuying needs,” said Joe Tyrrell, an executive vice president at Ellie Mae. “But in the past two months, FHA loans have represented less than 30 percent of the total loans for Millennials. We view this as an indication that more Millennials are qualifying for conventional mortgages.”
Other key findings from the January 2019 report include:
- The average FICO score on all closed home loans is 730, the highest average credit score of the year (Note: That’s the average score among borrowers in this age group. But it’s not the minimum score required to qualify for a mortgage. It’s possible to qualify for financing with a score below 723.)
- On average, the number of days to close a refinance loan increased for millennials.
Need a Home Loan in Washington?
Are you looking to apply for a Washington mortgage? If so, we can help. Sammamish Mortgage has been helping Washington home buyers and homeowners with their mortgage financing needs since 1992. We are a local, family-owned company based in Bellevue and provide mortgage programs to borrowers all over WA, OR, ID, and CO. Please contact us if you have questions about getting a mortgage loan.