Millennial Homebuyers Meet Digital Mortgages

Millennials are all about being quick and efficient; They don’t waste time filling out handwritten paperwork or writing letters anymore. This is mainly due to the fact that they’re more accustomed with the digital era than, say, the Baby Boomer generation. The same idea goes for buying a house; they won’t want to waste time putting pen to paper on a 1003 application, driving to and from a mortgage office and their bank hunting down documents. 

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According to the National Association of Realtors, Millennials make up thirty-six percent of today’s homebuyers to be exact. More specifically, sixty-five percent of these buyers were first-time homebuyers. This number will only continue to grow as more move on from rental properties. Due to the increasing number of Millennials who are buying homes today, it is critical for lenders in the mortgage industry to direct a large amount of efforts towards their demographic. As the number of millennial homebuyers grow, lenders need to be taking the necessary precautions to keep them satisfied throughout the home buying process.

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With that being said, paper 1003 applications are fading into the background as homebuyers want something that’s almost instantaneous. Digital point-of-sale (POS) applications seem to be growing in popularity amongst homebuyers and lenders combined. Not only do they reduce operating and origination costs, but they require much less work. 

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With convenient loan portals on lenders’ websites, homebuyers are able to successfully submit important documents and communicate directly with their loan officers. This takes away the back and forth between the buyer and the bank. POS applications are also sometimes set up to only provide the borrower with questions that apply to them, allowing abandonment rates to significantly decrease, with lenders closing more loans. Thus, keeping lenders and homebuyers happy. 

In addition, POS applications and mortgage websites will have to be mobile responsive because not all Millennials bother with having a desktop computer anymore. According to Statista, approximately 2.53 billion people have smartphones today. Some of these individuals feel that there is no point to own a computer when their smartphone has all of the same capabilities. They also want to be able to electronically sign documents online without making a wasted trip to the bank. In addition, it is imperative to have an automated verification system for things like assets, employment, and income, to make this process even easier.  This is a big part of digital mortgages, as the consumers don’t want to do more than they have to.  Therefore, a homebuyer must be able to apply for a mortgage whether they’re on the go or sitting right at home. 

All in all, it’s important to remember that there’s going to be a point where Millennials and Generation X members, whose lives have revolved around electronics, engulf the entire mortgage industry. The time is now to start making the necessary changes in order to keep potential homebuyers pleased, before the system becomes too outdated. The world is changing all around us, and lenders are going to have to make every effort to keep up. Digital mortgages are what Millenials are really waiting for–quick, efficient solutions. 

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Millennials Undeterred From Purchasing Homes Despite Rising Interest Rates

Millennials were not deterred from purchasing homes in October as the market continued to tighten, interest rates rose, and average loan amounts decreased. According to the latest Ellie Mae Millennial Tracker the average loan amount to Millennial borrowers for all closed loans was $189,686 in October, down from $192,005 in September, yet higher than last October’s average of $186,567. When men were listed as the primary borrower, the average closed loan in October was $198,864, compared to a much lower $188,607 when women were the primary borrower.

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Even with rising mortgage rates, purchase loans still accounted for 88 percent of closed loans to Millennial borrowers in October, four percentage points higher than a year ago. Of all closed loans to this demographic, 68 percent were conventional loans, while 27 percent were for FHA loans, 2 percent were VA loans and 3 percent were undisclosed.

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“Although housing prices and interest rates are still rising at a faster pace in 2018 than they have in previous years, those trends are not yet stopping Millennials from purchasing homes and putting down roots,” said Joe Tyrell, executive vice president of corporate strategy for Ellie Mae. “It is important for lenders to educate Millennials on the value of FHA loans that bring lower down payments and can allow these new homebuyers to stretch their dollar a little further even with rising interest rates.”

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Additional findings from the October 2018 Ellie Mae Millennial Tracker include:

>>Interest rates on all loans rose to 4.96 percent, the highest percentage point since Ellie Mae started tracking this data in 2016, up from 4.87 percent in September, and up from 4.13 percent a year ago.

>>Refinances slowly began to rise in the fourth quarter, representing 11 percent of all home loans to Millennial borrowers.

>>Across all home loans, it took an average of 42 days to close last month. A year ago, it took one day longer at 43 days to close. Purchase loans took an average of 41 days to close last month, compared to an average of 42 days to close a year ago. Refinance loans closed in 48 days last month, on average, compared to 45 days in 2017.

>>The average FICO score for Millennial borrowers remained flat for the third consecutive month at 722, slightly down from 723 in July.

>>The average age of all Millennial borrowers remained flat at 29.7 from the previous month, and essentially flat from 29.3 in October 2017.

>>Millennial males (both single and married) were listed as the primary borrower on 60 percent of closed loans in October. Women were listed on 32 percent and the remainder did not specify a gender.

Millennials’ View Of Home Buying Examined

Millennials’ perceived value in buying a home dropped below 50 percent, down significantly from post-Brexit high, according to the latest ValueInsured quarterly Modern Homebuyer Survey:

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In the third quarter of 2018, 48 percent of all millennials believe buying a home in America today is a good investment; this is a record low, down from 54 percent in the second quarter. The previous high was 77 percent two years ago.

Fifty-eight percent of millennials now agree buying a home is the best financial decision they can make for themselves and their family, another survey low in ten quarters.

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Just over six in 10 millennials (61 percent) now believe buying a home is more beneficial than renting, again a survey low, down from a high of 83 percent two years ago.

While 76 percent of all homeowners believe now is a good time to sell a home, only 39 percent of millennials who want to become homeowners believe now is a good time to buy a home.

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The ValueInsured Housing Confidence Index for millennials registered a score of 56.9 on a hundred-point scale in Q3 2018. It is the lowest level recorded, down 1.7 points from Q2, and down 10.1 points from a year prior.

In addition to reporting a steady slide in their conviction for home buying, more millennials now associate owning with sacrifices:

Nearly one in four (23 percent) believe they need to delay having children in order to afford buying a home

Thirty-two percent do not believe they can afford a healthy and balanced diet while saving for a home at today’s high prices

Thirty-one percent seriously consider relocating to another city to afford buying

“Conventional wisdom assumed millennials were buying homes later because they chose to get married and have children later,” says Joe Melendez, CEO and founder of ValueInsured.  “New research now suggests homeownership may be the cause, not the effect, of delayed family formation. It is an alarming trend, and we see more acute evidence in expensive housing regions.”

Among millennials who are still interested and motived to become homeowners “in the near future,” their anticipation is often filled with anxiety. Among motivated first-time buyers, 49 percent are concerned rising mortgage rates could make homes currently within their budget become unaffordable later; 67 percent are concerned they will not save enough for a home they would actually like to live in; and 52 percent believe a home they buy now will likely drop in value within one year. Sixty-eight percent are concerned about another housing crisis; and 64 percent admit they will likely experience buyer’s remorse after reaching their homeownership goal.

Their trepidation could be explained by the high stakes these millennials plan to undertake. Eighty-five percent in the survey expect their home down payment to represent over half of their total personal assets.

“Most homebuyers experience a healthy amount of jitters before such a milestone purchase – that’s normal,” Melendez said. “But the new normal is highly anxious, inexperienced buyers bungee jumping in without knowing if their safety harnesses will work. That is an unhealthy, bordering on dysfunctional trend that our industry needs to mitigate to ensure we do not lose an entire generation of future homeowners.”

Millennial Home Purchases Continue To Rise

Mortgages to Millennial borrowers for new home purchases continued their ascent in June, accounting for 91 percent of closed loans, according to the latest Ellie Mae Millennial Tracker report. In May, 90 percent of closed mortgages to members of the generation were for new home purchases, up from April’s 89 percent, and January’s annual low of 81 percent. This is in correlation with the Census Bureau’s latest quarterly homeownership and vacancy report that shows homeownership across Millennials age 35 and younger increased slightly, representing 36.5 percent of all homeowners, compared to 35.3 percent in the first quarter of 2018.

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Conventional loans remained attractive among Millennials, representing 69 percent of all loans closed in June, a slight uptick from 68 percent in May. FHA loans represented 27 percent of all closed loans to this generation, down one percentage point from the month prior. This is significantly higher than the Ellie Mae June Origination Insight Report data which showed FHA loans represented 20 percent of closed loans in the month for borrowers of all ages.

Average Millennial borrower FICO scores across all loan types rose slightly in June to an average of 723, up from 721 which held steady March through May. For purchases, the average FICO score was 746 for a conventional loan, 681 for an FHA loan and 744 for a VA loan.

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“As it remains a competitive, purchase-centric market, we will continue to keep a close eye on the purchase trends amongst Millennials,” said Joe Tyrrell, Ellie Mae’s executive vice president of corporate strategy. “This new generation of homebuyers wants the capability of an on-demand mortgage, and we are working to provide borrowers a convenient and secure digital mortgage offering that makes the homebuying process a seamless experience.”

Across all loan types, it took Millennials an average of 42 days to close on their loans in June, a day longer than in March, April and May. Purchases took an average of 41 days and refinances took an average of 45 days.

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In June, the hottest housing markets for Millennials were primarily in the Midwest. The top markets by percentage of Millennial loans closed included Clarksburg, W.Va. (65 percent), Watertown, S.D. (65 percent), Boone, Iowa (64 percent), and Dickinson, N.D. (61 percent).

The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. It mines data from a robust sampling of approximately 80 percent of all closed mortgages dating back to 2014 that were initiated on Ellie Mae’s Encompass mortgage management solution.

Millennial Homebuyers Exercised Their Purchase Power

Millennial homebuyers across the country exercised their purchase power in April as competition for limited housing inventory continued. Eighty-nine percent (89 percent) of mortgage loans made to Millennial borrowers during the month were for new home purchases, up one percentage point from the month prior, and the highest percentage since May 2017, according to the latest Ellie Mae Millennial Tracker.

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Interest rates also continued to rise in April to 4.73 percent, on average, up from 4.63 percent the month prior. This is the highest interest rate recorded since Ellie Mae began tracking Millennial loan data in January 2014.

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As interest rates crept up, average loan amounts to Millennials fell. The average amount was $194,300 in February, $192,055 in March and $188,171 in April.

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“Most Millennials are buying a house because there are major changes happening in their lives such as starting a family, getting a new job, or because they’ve decided that they want to build equity and stop renting,” said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. “We believe Millennial home purchases will continue to climb this summer and while interest rates may slightly impact the size of homes borrowers can get for their money, we don’t foresee it impacting their desire to buy.”

Overall, conventional loans represented 67 percent of all closed loans to Millennial borrowers, while FHA loans held steady at 29 percent from the previous month. VA purchase loans for Millennial borrowers represented 79 percent of all VA closed loans in April, steady from the month prior, and up from 66 percent in February.

The time it took for Millennial homebuyers to close a loan remained flat month-over-month. Purchase loans took an average of 39 days to close and refinance loans took an average of 44 days. FHA purchase loans took an average of 40 days to close, compared to 41 days in March. VA purchase loans averaged 49 days-to-close, compared to 45 days the month prior.

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Refinances Remain Ready Among Millennials

Refinances among Millennial borrowers regained their popularity in the fourth quarter of 2017, according to the latest Ellie Mae Millennial Tracker. December was the third straight month refinances accounted for 15 percent of all closed loans for Millennial borrowers – the highest percentage of refinances for this demographic since February 2017’s annual high of 17 percent. The percentage of closed purchase loans remained at 84 percent, decreasing from June 2017’s peak of 90 percent.

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Specifically, the percentage of Conventional refinances remained at 19 percent, holding steady since October, while FHA refinance loans stayed at six percent from the month prior. The percentage of Conventional purchase and FHA purchase loans also remained the same from November to December at 80 and 94 percent, respectively.

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“With seasonality and low inventory levels at the end of the year, Millennial borrowers continued to take advantage of refinance options during the fourth quarter,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “Many may have been driven by a desire to take advantage of low interest rates given uncertainty about potential rate hikes in the new year.”

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Other statistics of note for Millennial borrowers in December included:

>>The average 30-year note increased slightly from 4.18 in November to 4.22 in December, still lower than 2017’s highest monthly average of 4.34 in April.

>>The average time to close all loans held at 44 days in December.

>>Average time to close a refinance held at 45 days, while the time to close a purchase also remained flat at 42 days, the same since June 2017.

>>Average FICO scores for all closed loans fell one point from the month prior to 722.

The top Metropolitan Statistical Areas (MSAs) for Millennials by percentage of mortgage loans closed in December included Casper, Wyo. (71 percent), Williston, N.D. (63 percent), as well as Victoria, Texas and Mount Pleasant, Mich. (both 61 percent).

The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. It mines data from a robust sampling of approximately 80 percent of all closed mortgages dating back to 2014 that were initiated on Ellie Mae’s Encompass mortgage management solution. Searches can be tailored by borrower geography, age, gender, marital status, FICO score and amortization type.

Higher Rates Did Not Deter Millennials

Summer temperatures and higher rates appeared to have little effect on the Millennial homebuying market, according to August data from the Ellie Mae Millennial Tracker. Conventional loans remained steady at 64 percent of all closed loans by this generation, while FHA mortgages stayed at 32 percent—a market share they have held since June. The average loan amount for loans closed by Millennial borrowers in August of 2017 was $185,919, a slight increase from August 2016’s average $184,113, despite the average 30-year note rate having increased to 4.211 percent from 3.706 percent last year.

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In August 2017, the average Millennial primary borrower was a 29.4-year-old who took out a Conventional loan of $185,919 to purchase a home with an average appraised value of $223,882. This average homebuyer had a FICO score of 724, which helped them get a 30-year note rate of 4.211 percent, and they closed on their home in 44 days. The majority (64 percent) of primary borrowers were male. Additionally, more than half (52 percent) of borrowers were married.

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On the West coast, the average Millennial borrower was slightly older, at 30.6 years old, taking out a loan of $314,579 on average. Average loan amounts were lower in the Midwest, with homebuyers of age 29.5 closing loans averaging $158,584 in Kansas, for example. In Hawaii, borrowers of 31.4 years took out loans averaging $396,766.

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Overall, Millennials were most likely to close loans for the purpose of purchasing a home (87 percent). Refinances accounted for 12 percent of loans closed by Millennials in August.

“Average loan amounts in August of this year were slightly higher than last year, despite higher interest rates,” said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. “As tends to happen with tight inventories, this is a seller’s market, and many of today’s homebuyers may be faced with paying a premium for the same home they might have bought for less last year. For those who are committed to buying a home, though, slight increases in competition, costs or interest rates will likely not deter them.”

Other key findings from the August 2017 Ellie Mae Millennial Tracker include:

The top five markets where Millennial borrowers represented the highest percentage of homebuyers in August were Lima, Ohio, Batavia, N.Y., Dyersburg, Tenn., Roswell, N.M., and Kendallville, Ind.

Female homebuyers increased their purchase power, with closed loans in August averaging $189,574, up significantly year-over-year from $184,094. Males took a slightly smaller jump, averaging $196,246 in August 2017, versus $194,913 last year.

The metropolitan region with the largest percentage of female homebuyers (63 percent) was Mankato, Minn., with an average loan amount of $136,597 and average borrower FICO score of 723.

Males made up 60 percent of the Millennial market in Lima, Ohio, with loans averaging $86,845 and averaging borrower FICO scores coming in at 725.

The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. It mines data from a robust sampling of approximately 80 percent of all closed mortgages dating back to 2014 that were initiated on Ellie Mae’s Encompass all-in-one mortgage management solution.

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Let’s Stop Trying To “Figure Out” Millennials

Millennials, millennials, millennials. Within the past five years, the term has invaded our vernacular and been used to sweepingly define a segment of the population that is apparently begging to be figured out by marketing experts in virtually every industry. But this demographic isn’t some unsolvable, complex equation. Marketers must simply work to communicate and meet the needs of each subset.

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A 20-25 year old is going to have a much different set of expectations when it comes to speed and convenience; for the most part, a world without the internet access is not one with which they’re familiar and mobility is an expectation, not a preference. In contrast, the 33-37 year old segment was coming of age at a time when the evolution of consumer technologies started taking off. As they have progressed into adulthood and into their careers, digital and mobile tools have ignited an appreciation for an ever-increasing level of ease. And then in between these two groups, 26-32 year olds became familiar with the internet as adolescents and developed an expectation that information should be easily accessible. The common denominator is convenience and the path of least resistance. My question is: are lenders equipped to provide that path?

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The industry has made significant progress in creating a frictionless, digital mortgage process. The move toward automation of income, employment and asset verification has already reduced lenders’ reliance on W-2’s, pay stubs and any other documentation that traditionally slowed underwriting. Even the manual verification process has become much more streamlined, provided that the lender is working with a comprehensive and trusted partner. In addition, the introduction of trended credit data allows lenders to to discern who, among two borrowers with identical credit scores, poses a higher risk. This facilitates more accurate and intelligent lending decisions, improving the quality of portfolios and contributing to the continuous decline in delinquencies. The pieces are available for lenders to deliver the level of convenience that will satisfy millennial homebuyers. So what’s next?

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First, originators need to become adept at converting the data and analytics into actionable components of the digital mortgage workflow to truly support the end-to-end origination process. If the borrower can use the app to transfer documents and close the mortgage, but still needs to come to the branch in person to get approved for the loan, there’s a good chance that the process will end before it even begins. Alternatively, if the borrower can get approved for a loan digitally, but needs to complete the rest of the process manually, it’s going to create friction and result in losing the business. In other words, don’t try to fool anyone.

Once the operational pieces are in place, the next thing that a lender must do is create a marketing strategy that clearly communicates and educates consumers on the value of the digital mortgage process. Shout it from the rooftops! Diving deeper, lenders must know where the borrower is in his or her respective lifecycle. Someone just out of college will be focusing on starting a career and saving money (and potentially paying down student loans). It’s unlikely that a home purchase is in the immediate future, but it is certainly on the horizon, so it’s important to establish that relationship so you’ll be the lender of choice when the time comes. An individual that is several years removed from college may have saved diligently and based on other financial triggers (paying down various loans, expanding their lines of credit, etc.), they may be a great prospect for a lender to get the dialogue started. Finally, older millennials may already be homeowners, but could also be prime prospects for home equity lines of credit (HELOCs) for home improvements or additions. As rates continue increasing, HELOCs will become more popular products thanks to the low cost of equity extraction and the ability for the borrower to tap into the funds as needed, instead of all at once.

As you can see, there is plenty of information available to lenders that will reveal where a prospective borrower is in the journey to homeownership. Supplementing that, geographical data shows the areas where low- to moderate-priced housing is plentiful or where buying is a more economic decision than renting. And as rates continue increasing, time is of the essence; it’s important to maximize the largest opportunities in each market while they’re still there.

I’m not the only one who has witnessed the evolutionary trajectory of the mortgage industry and how it has coincided with the increasing demand for convenience. So let’s stop trying to figure out millennials. The frictionless mortgage process is a reality and the tools are already there to help lenders accurately identify and appropriately market to borrowers of all ages – it’s time for us to put all of the pieces together and grow the business.

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It’s Not One Or The Other

Fifty-seven percent of homeowners applied for and completed their latest mortgage completely in person, while more than one-quarter of homeowners (28 percent) applied for their most recent mortgage using a combination of online and in-person interaction, according to the 2017 Borrower Insights Survey of homeowners and renters conducted by mortgage automation provider Ellie Mae. Another 11 percent of homeowners applied for their latest mortgage completely online with no in-person interaction.

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When asked what factor would have improved the mortgage process, approximately 40 percent of homeowners indicated they would have liked a faster process with fewer delays. Twenty percent indicated that a shorter, easier to understand application would be preferable, while 11 percent asked for more communication with their lender throughout the process.

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Millennials were the most likely generation of homebuyers to begin their mortgage application online and finish it with an in-person interaction with their lender (30 percent). Gen X (28 percent) and Baby Boomer (20 percent) borrowers weren’t far behind in using this online and in-person approach.

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“There’s no question that technology is playing a larger role in the home buying experience,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “As we expected, many homeowners are seeking a faster and more streamlined experience. And it’s not just a millennial phenomenon; it’s homebuyers of all ages and both genders.

“But what’s even more telling is that homeowners still want a personal interaction with their lender. They want someone who can answer important questions, and make them feel confident that everything will be handled correctly and on time. While 27 percent of millennials identified the speed of the process as the top area to improve their experience, surprisingly 23 percent cited more face-to-face interaction as the second-greatest opportunity for improvement. By leveraging technology, lenders can provide a more high tech experience to simplify and speed the overall process, while still having the high-touch interactions when and where homebuyers want,” Tyrrell said.

The Ellie Mae survey found that today’s homebuyers most value speed, security and simplicity when applying for a home loan – all of which are enabled by technology. Millennials and women were the most likely to cite security as the most important factor when they applied for a loan. Gen X and Baby Boomer buyers were more likely to value the speed of the process. All three generations equally valued simplicity.

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