Since the real estate bubble and economic collapse of 2008, it has been a slow road back to normal for the real estate industry. One particular segment that has been crushed by hard economic times has been that of first-time homebuyers. Whether battling their own economic challenges or simply worried about making such a long-term economic commitment, this group has shied away from home ownership.
Building the Community
Yet, this group is essential for the market to flourish again. As a result, Illinois is among those states taking extra measures to pave the way for those who have never owned a home before. There are many reasons to take such actions beyond helping the housing industry; home ownership also helps the community.
Rising foreclosure rates have made many neighborhoods less stable and more crime-ridden. In addition, school districts have experienced a shrinking tax base as a result of dropping real estate values. More than anything, those looking to move up into bigger and better homes have been at a loss without an influx of new homebuyers (most first-timers) to take over their current properties. The circle was broken.
Welcome Home Illinois
If ever there was a time that first-time homebuyers in Illinois needed help, it appears that is now. According to the most recent data from the Illinois Association of Realtors, first-time buyers today account for just 17 percent of sales, a stark contrast to the 30 percent before the housing bubble burst.
In addition to making first-time buyers more financially literate, programs like Welcome Home Illinois are offering first-time homebuyers a $7,500 forgivable loan for use as a down payment or to assist with closing costs. It also has the advantage of offering a below-market interest rate on a 30-year fixed mortgage of 3.99 percent (compared with a typical 4.40 marketplace rate).
Easing of FICO Scores
With tough economic times, bill-paying has suffered, and FICO scores have dropped, preventing many first-time buyers from taking the initiative to begin considering purchasing a home. For the Welcome Home Illinois program, a FICO score of 640 is required. That is less than the 669 required for most Federal Housing Administration (FHA)-backed loans.
There’s also evidence that FICO score requirements are dropping at some financial institutions as well. Wells Fargo recently dropped their mortgage number from 640 to 600, and Carrington Mortgage Services has said it would consider FICOs as low as 550. Other companies have refused to set hard and fast rules, but are willing to consider first-time borrowers with lower FICO scores on a case-by-case basis.
Make no mistake, however. The days of the real estate bubble are over: Extensive documentation proving borrowers have the adequate means of paying their loans is essential for all those seeking a mortgage.