The attached article sums up today’s buyers…more and more buyers are not seeking high loan-to-value ratios and are either putting more money down or paying cash. However, many of these buyers are not your “typical” first-time homebuyer who may have little equity (less than 5%) to contribute to the down payment. As lenders have tightened underwriting criteria, this article is not a big surprise.
More homeowners paying cash in effort to deleverage
Cash was the top source of financing home purchases in September, as more homeowners look to deleverage their debt. According to a recent Campbell/Inside Mortgage Finance survey, 30.5% of home purchases during the month were financed with cash, up from 24.4% in January.
The survey attributed this jump to the amount of distressed properties on the market being purchased and a decrease in the number of first-time homebuyers. Distressed properties are more likely to be bought with cash because they are at a lower valuation and don’t require as much financing, and first-time homebuyers do not typically have enough cash on hand to buy homes without financing.
As of September, real estate-owned and short sale transactions accounted for 47.5% of market purchases, according to the Federal Reserve Bank of Cleveland. First-time homebuyers accounted for 34.4% of purchases, down from 42.4% in June.
Homeowners are also deleveraging mortgage debt by reducing their loan-to-value ratios and loan maturity terms.
“Loan-to-value ratios have steadily declined since they peaked, falling 680 basis points for existing homes and 520 basis points for new homes,” the Fed said.
As of September, the average term to maturity of all loans closed was 27.6 years, down from 29.6 years in June 2007.
The Cleveland Fed said homeowners desire to deleverage debt is driving down the mortgage obligation ratio, which measures the outstanding value of a mortgage as a percent of a borrower disposable income. The ratio peaked in 2007 at 11.3%, but steadily dropped thereafter to 10.3% as of the latest data released by the Fed.