Conventional Loans Still Prime Choice for Millennials


Latest reports indicate millennials are still opting for conventional loans as their mortgage financing choice, although a significant chunk of the demographic still heavily relies on the Federal Housing Administration (FHA) loans.

The Data

Since its release in May, Ellie Mae’s Millennial Tracker has produced insightful data on Millennial decisions in the housing and mortgage arena. Its latest find: a percentage higher in movement towards conventional loan choices. About 62 percent of millennial homebuyers have closed out conventional loans in July. On the previous month, it was a percentage lower. This is compared to 35 percent of them who closed on FHA loans in July, a two-percent point down from June’s 37 percent.

Men still take the majority of millennial borrowers, owning 68 percent of the share. Among the women, 61 percent are unmarried while 39 percent are married. Although women seem to be finding it harder to get a mortgage, a report from the Housing Finance Policy Center proves that women are better at paying mortgages than their male counterparts.

The shift also catapulted improvement in the charted average FICO score from 722 in May to 725 in July.

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The Tracker

Ellie Mae’s Millennial Tracker is an interactive online tool which provides open access to updated demographic data about homebuyers aged 35 years old and below. The tool crunches data from over 66% of all closed mortgages since 2014. Searches can be filtered by gender, age, marital status, amortization type, and FICO scores.

Millennials and Homeownership

According to a recent report by real estate consultant John Burns, since the housing collapse of 2009, the biggest drop in homeownership rate is within the millennial group. A 21.2 percent drop predicts many millennials might be renting longer.

This is not to say that millennials no longer uphold the American dream. On the contrary, a study by Trulia found out that about 80 percent of 18- to 34-year-olds always aspired of owning their own homes. However, the current challenges and this generation’s uniqueness present some important challenges that make it a bit difficult to step into homeownership. At least for now.

There are approximately 87 million would-be homebuyers in the millennial generation. The most commonly cited roadblocks to homeownership include lack of or low credit scores and the unavailability of a down payment.

This explains why a significant part of the millennial generation opts to rely on the advantageous offers of the FHA. Yet, if the FHA is to help this generation, it should be flexible enough to make its policies more receptive of their needs.

While the shift to conventional loan might indicate financial strength in the group, the varying factors that drive strain in the millennial’s decision to choose simpler alternative are distinct – the unavailability of affordable homes where professional or career opportunities are present, compounding college debts, and a mixture of diverse, culturally-relative personal and social factors.

Uncertainty has become the name of the game. While different factors pull the stats both ways, we can only hope for the better.
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Justin McHood

Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.

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