Is now the toughest time in decades to be a First Time Homebuyer?
It’s a challenging time to be a first-time homebuyer. In many markets across the U.S. home inventory remains low and homes continue to receive multiple offers every day. Home prices remain high and there’s no significant correction in sight. With mortgage interest rates up and expected to continue to increase through the rest of the year, an already tight affordability market continues to get even tougher. Recent data from Black Knight indicates that the average monthly mortgage payment costs the typical American household 31% of its monthly income.1 It’s enough to dampen homeownership dreams for some.
While there are lots of barriers to entry for first-time homebuyers, rents are also at an all-time high in many markets. In fact, the difference between median monthly rents and median monthly mortgage payments in the U.S. has narrowed to just $30 — the smallest gap on record, according to the real estate brokerage Redfin.2 While renting is getting even less desirable, high rents make it challenging for prospective first-time homebuyers to put aside savings toward a down payment, higher monthly mortgage payments, as well as mortgage insurance and property taxes.
Borrowers still want to purchase housing, but it is getting trickier especially for first-time buyers to qualify under the needed payment and debt to income ratio qualification criteria. This confluence of factors has seen renewed interest in adjustable-rate mortgages, which may be initially cheaper for many borrowers. These factors also create an environment where mortgage lenders must be able to detect any misrepresentations in mortgage applications, such as falsified income. Borrowers that want to qualify for home loans may be compelled to inflate their income to meet the debt-to-income ratios needed to qualify. While they may have every intention to pay consistently, inflated income is a real risk for lenders.
When interest rates increase, refinancing transaction volume drop, so every lender, broker, and loan officer has an incentive to get each potential deal through. As such, using data and technology to assess the validity of a borrower’s income and protect against misrepresentation is as important as ever. Point Predictive IncomePass analyzes borrower-reported income against millions of historically reported incomes across occupations and geographies, IRS income data, census data, and many other sources to validate the applicant’s income for reasonableness. IncomePass helps reduce losses due to income misrepresentation by detecting up to 80% of inflated incomes while eliminating the high cost of income verification for the vast majority of applicants. It also helps lenders streamline the underwriting process for applicants, including first-time homebuyers, who are low risk for inflated income.
Times are tough for first-time homebuyers. They want to free themselves from record-high rents and make an investment in their first home before further increases in mortgage rates come to fruition. There are temptations to inflate income to qualify for a mortgage at terms they can afford. IncomePass is just one of the Point Predictive mortgage solutions that can help lenders fund low-risk loans and avoid the delays and costs associated with traditional income verification for many prospective borrowers.