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Mortgages for millennials: Young buyers finally saying ‘YOLO’

With job market improving, government agencies and lenders offer new loan products or assistance to younger borrowers

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With the spending habits and job outlook for recent college graduates showing improvement, lenders and government agencies are eyeing the millennial market and offering new loan products or assistance to help get younger buyers into their first homes.

Much has been reported about the particular financial challenges facing millennial — those born between the early 1980s and 2000 — buyers, especially those who have recently completed their college educations. Unprecedented levels of student loan debt and expensive rents are often blamed for the inability of this generation to save up for down payments and venture into the homebuying process. According to a recent Goldman Sachs report, the number of millennials with outsized student debt is “rising fast,” even among former students who never graduated from college.

Whether or not they completed a college degree, millennials have been burdened by the worst job market in our nation’s history. According to U.S. Department of Labor data, between 2007 and 2010, the unemployment rate within this group soared to 14 percent from 7.8 percent, compared with 9.6 percent for the population as a whole.

But other unique characteristics and experiences of this generation — the largest in our nation’s history, surpassing even baby boomers in numbers — also play into how it views the prospect of homeownership. For the last five years, the number of millennials choosing to live at home with their parents has been hovering around 30 percent. Millennials are delaying marriage, parenthood and the purchase of big-ticket items like cars and luxury goods. They’re also picky buyers when they do spend money, with online product information, reviews and price comparisons making it easy for them to shop around for brands that offer low cost and maximum convenience.

But with the job market improving and millennials starting to show signs of financial responsibility, government agencies and lenders are offering a helping hand to those exploring the possibility of homeownership.

Earlier this year, federal lawmakers cut the premium that borrowers with a Federal Housing Administration (FHA) loan must pay for mortgage insurance from 1.35 percent to 0.85 percent. That half-a-percentage-point reduction could reduce the cost of the average FHA loan by about $1,000 per year. Meanwhile, Fannie Mae and Freddie Mac have dropped the minimum 5 percent down payment requirement to 3 percent on some of its mortgages. FHA requires a 3.5 percent down payment.

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Assistance is also available at the state level. For example, recent college graduates in Ohio can now receive down payment and closing cost assistance and a favorable mortgage interest rate from an Ohio Housing Finance Agency-participating lender via the “Grants for Grads” product. Income-eligible first-time homebuyers who have graduated from high school or have a GED and have earned an associate’s, bachelor’s, master’s, doctorate or other postgraduate degree within the last 24 months and have not had ownership interest in a principal residence in the past three years may qualify for a grant in the amount of 2.5 percent of a home’s purchase price thanks to this program.

Lenders are also working to entice younger borrowers. A San Francisco-based lender, Social Finance, or SoFi, recently expanded into the mortgage market in 22 states, plus Washington, D.C., after getting its start in refinancing student loans. This captive audience led the company to create a marketplace that connects investors to borrowers tied to the colleges and universities they attend. According to the company, millennials are showing more enthusiasm for homeownership, and SoFi received a response for $300 million in mortgages as part of an outreach effort to California borrowers.

And Washington, D.C.-based lender First Savings Mortgage Corp. has launched a new program to help recent graduates in the medical, legal, finance, engineering, education or science fields buy a primary residence in the Capitol area. The “Graduate Loan Program” offers 90 percent loan-to-value loans of $417,000 to $2 million without requiring mortgage insurance. Both adjustable- and fixed-rate loans are available. Qualified borrowers must have a credit score of 700 or higher and make a minimum 10 percent down payment. Borrowers must also have a maximum debt-to-income ratio of 40 percent, as well as six to 18 months of cash reserves to ensure they can make mortgage, tax and insurance payments.

But Gregg Busch, first vice president of First Savings Mortgage, acknowledged in a Washington Post interview that the programs’ terms may not be a good fit for some buyers with lower-salary jobs. Still, the lender is optimistic.

“We feel things have come around — jobs have improved and companies are hiring,” Busch told the newspaper.

Email Amy Swinderman.

This story has been updated.