Last week we highlighted a couple of points on household formation & homeownership found in the Annual State of Hispanic Homeownership Report by NAHREP (the National Association of Hispanic Real Estate Professionals); and today I would like to focus on the barriers to homeownership.
As we mentioned last week, in 2014, the rate of homeownership among Hispanics dropped from 46.1% in 2013 to 45.4%. According to this report, the decrease was due in part to a faster pace of growth of the total Hispanic household formations, but there are four additional obstacles mentioned:
1. Tighter Mortgage Credit
In a 2015 NAHREP survey of 100 of the top Latino Real estate agents, 60% of them mentioned that the top barrier in the current market is “Access to Credit”. And even though a Federal Reserve study showed that “immigrants perform better on their loan than predicted by their conventional or non-traditional credit score”.
In 2013, Hispanics were turned down for home loans at twice the rate of non-Hispanic white borrowers and were more than twice as likely to pay a higher price for their loans.
In 2014 this community had a major challenge with the change in FICO score guidelines. In October 2014, the average FICO score for all mortgage loans was 726 and 683 for FHA loans. Historically, a credit score of 700 was typical for conforming loans with the most competitive rates and fees.
These two items are critical for homeownership among Hispanics!
2. Down Payments and Loan Costs
The report also mentions that ‘Hispanics, as other first-time homebuyers, continue to make small down payments and are disproportionately affected by upfront fees charged, like Loan Level Price adjustments (LLPAs) and higher Guarantee Fees (g-fees). Of the approximately 6.5 million Hispanic owner households in 2012, more than 205 Million, (39%) made a down payment of 5 percent or less, as compared to 29% for all US households’.
A homebuyer with a lower FICO score and a low down payment will pay a substantially higher interest rate for their loan.
3. Lack of Affordable Homes
The third barrier for entry to homeownership mentioned in the survey was the inventory shortage in many markets as a primary barrier for prospective Hispanic Buyers. This problem is not just limited to Hispanic Buyers, but the entire real estate market, as we reported on last month.
4. Knowledge Gaps and Professional Infrastructure
The report mentioned that “many prospective Hispanic homebuyers lack accurate information about the home buying process. Language barrier and limited experience can exacerbate an already complicated process”.