Traditionally, married couples dominated the ranks of all buyers. Now they’re just barely in the majority — 56 percent — among first-time buyers.
Today’s new buyers increasingly span the social and gender spectrum, from single women looking to purchase urban condominiums to unmarried couples to foreign-born and “multigenerational” households seeking to share the costs, responsibilities and living space with extended family members.
Consider some of the latest data available from the 2015 Home Buyers and Sellers Profile compiled by the National Association of Realtors (NAR), along with research on mortgage patterns among different ethnic groups by Fannie Mae, the giant mortgage investor:
- Single women now account for nearly one-sixth (15 percent) of all home purchasers and one out of every seven repeat homebuyers. Combined with unmarried male buyers (9 percent), singles account for more than one out of every four (26 percent) purchasers.
- Thirteen percent of buyers are shopping for houses that fit “multigenerational” needs, where grandparents, parents and grandchildren all either inhabit the same property or want to help finance the purchase. Among all home-owning households with a mortgage, 14 percent are multigenerational, including 17 percent of Asians, 20 percent of African Americans and 25 percent of Hispanics.
- One out of every 14 home purchases are now made by unmarried couples. Among first-time buyers, the proportion is nearly double that — 13 percent of all purchasers.
Fannie Mae describes this increasingly diverse picture of home buying and borrowing as the new “homeownership for the way we live today.” Each of these growing groups of buyers comes with their own unique challenges — and needs — in their pursuit of ownership.
Here’s a quick overview of some of them:
Single Female Buyers
Compared with married and unmarried couples, single women tend to have slightly lower household incomes on average and that tends to constrain what they can buy and where. As a result, according to researchers at NAR, they tend to favor condominiums and townhomes — newly built and resale. Aaron Drucker, an agent with realty firm Redfin in Miami who works extensively with single buyers, says their biggest hurdle “by far” is financing — qualifying for the loan on income and then coming up with the down payment and closing costs. Many of them, Drucker said, must look to parents and other relatives for gift funds to help out.
Because of controversial restrictions imposed by the Federal Housing Administration, many individual condo units today no longer can be financed using low down payment FHA loans. Instead, singles often must turn to the conventional marketplace — banks, Fannie Mae and Freddie Mac. Many of these lenders, Drucker says, now expect not only down payments of 20 percent to 25 percent on condos, but above-average credit scores — FICOs well into the 700s. NAR found that 95 percent of all single female buyers needed a mortgage to buy their homes and that it took them an average of 1.5 to 5 years to put together the needed funds. Yet, despite these hurdles, they are succeeding at twice the rate of single males and becoming a powerful presence in the home-purchase field.
Among the challenges this rapidly expanding group of purchasers often confronts is not only finding a physical layout that fits the needs of household members, but qualifying for a mortgage that allows them flexibility on counting resident household members’ incomes toward what’s needed to qualify.
Lenders typically prefer just one or, at most, two credit-worthy borrowers on the mortgage note and title, but in some families several income earners are needed in combination to be able to afford the payments. Fortunately, however, there are some new solutions available for these buyers. Starting Dec. 12, 2015, Fannie Mae will begin financing multigenerational purchasers using its new HomeReady program. The program allows for 3 percent down payments, higher-than-typical debt-to-income ratios (to 50 percent) when household members are income earners, multiple non-occupant borrowers on the note, plus lower-than-typical mortgage insurance payments. Some builders also are responding to the needs of multigenerational buyers by offering flexible new space arrangements in new homes specifically designed to house grandparents, parents and kids. Learn more about multigenerational living from our article, Lennar’s NextGen Home-Within-a-Home Provides Multigenerational Living.
They face some of the same income and credit challenges as other buyers, but they also have their unique issues. Chris Washburn, a loan officer with Caliber Home Loans in Virginia, says these buyers have to engage in serious financial planning before they even go shopping. Title to the property is a major concern, he says, because unlike married couples, they can’t own the property as “tenants by the entirety,” which guarantees each individual an undivided ownership interest in the property that automatically passes to the remaining spouse if the other dies.
Unmarried couples have to map out what lenders call “a break-up plan.” If one of the partners decides to split, who takes over the title — and the mortgage payment responsibilities that go with it? Would either partner have the credit score and income needed to handle payments and other costs of ownership — condo association dues, property taxes, home repairs and upkeep? If not, and the property has to be sold, who bears what percentage of the profits, losses and other costs? If one partner dies, is there a will that details what assets, possessions or life insurance proceeds of the deceased partner should be taken over by the remaining partner? Without a will, a deceased partner’s assets typically flow to that person’s direct relatives — parents, children, brothers, sisters — which by definition excludes the unmarried partner. Washburn says he recently was involved in a refinancing where the couple got into a fight and decided to split up midway through the transaction. But the partner who wanted to remain in the house could not qualify for the mortgage payments on his own as a single. “It got kind of ugly,” Washburn says.
His advice for unmarried couples contemplating a home purchase: Think of all the potentially bad scenarios that could occur, and, with the help of one or more financial planning or legal professionals, handcraft an agreement that outlines how to deal with each situation. That should include written advance directives and health care proxy agreements so that a partner can make the right decisions in the event of a medical crisis or extended illness of the other partner.
As the demographics of who’s buying homes in the United States continues to shift, so will the type of homes being built to meet buyers’ needs. With more single women and foreign-born and multigenerational households, we can expect the “norm” to change in coming years.