Home purchases financed with lower down payment mortgages such as those guaranteed by FHA, VA, Fannie Mae, or Freddie Mac are much more likely to face closing delays than transactions involving all cash or large down payments, according to a new survey of real estate agents.
The survey of January transactions showed that home purchases financed with lower down payment mortgages – specifically FHA, VA and the GSEs – experienced closing delays more than 40 percent of the time while home purchases involving all cash or bank portfolio mortgages face delays only about 25 percent of the time. These are some of the key findings of the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
Lower down payment loans guaranteed by federal and state agencies also tend to have lower underwriting standards. Moreover, credit and income standards applicants must meet to qualify for these loans have been declining in recent months, and may continue to do so since they are exempt from the QM Rule much lower for FHA loans, which are guaranteed by the Federal government than conventional loans. The survey found that real estate agents reported that prospective homebuyers also are finding it harder to qualify for a mortgages due to the new QM Rule.
Mortgage underwriting standards declined last year in several categories, according to according to data from Ellie Mae. During the year the median time to close for all loans declined from 54 to 45 days and averaged 46 days during the year. Median FICO scores for approved FHA purchase loans fell from 699 to 688.
Conventional purchase loans, which require a higher down payment, require a higher median FICO score of 755. Median debt to income ratios are 29 percent for FHA loans today compared to 23 percent for conventional loans. Loan to value median ratios are 80 percent the time to close FHA applications improved steadily during 2013 according to Ellie Mae. Ellie Mae operates the leading mortgage transaction platform, which processed more than 3.4 million purchase and refinancing applications last year.
Because lower down payment mortgages are more likely to delay or even derail a home purchase transaction, many home sellers look for contract offers involving all cash or at least large down payments.
The biggest factor impacting home purchase closings with lower down payment FHA, VA and Fannie/Freddie mortgages was “mortgage underwriting delay,” according to the HousingPulse survey results. “ Mortgage documentation delays” and “appraisals” also were major factors with this type of financing.