Credit unions are developing ways to help average buyers in a market where home prices are breaking records and sellers are juggling multiple offers.
Two western credit unions announced mortgage options earlier this month in an effort to lower the down payment barrier for buyers and increase sellers’ confidence in their offers.
Denver-based Westerra Credit Union ($ 1.9 billion, 112,567 members) has created a pre-approval bridging loan that covers buyers’ down payment for a new home without first having to sell their current home. In the process, they will be approved for a new mortgage loan. The bridging loan is designed to help members use their current home equity with a full credit approval letter to make a more attractive offer on their next home.
To improve the commitment for sellers, Westerra guarantees that home loans will be closed by the closing date of the sales contract if all requirements are met. If Westerra fails to deliver, it will pay the buyer and seller $ 500 each upon completion.
Westerra’s press release states that the guarantee gives buyers “a stronger position when submitting a bid and an advantage when submitting multiple bids”.
Orange County’s Credit Union in Santa Ana, California, 35 miles southeast of Los Angeles ($ 2.2 billion worth, 120,361 members) offers expanded options for 0% and 3% down payments for homes in its Orange member area, Los Angeles, Riverside and San Bernardino counties in the greater Los Angeles Metro area.
Carlos Miramontez, vice president of mortgage lending at CU Orange County, said the biggest hurdle in home ownership is saving enough money to pay a down payment, a challenge that worsens in a turbulent fiscal year and an aggressive real estate market.
“We knew we needed to create deals that differ from standard mortgage options and lower the barriers to home ownership,” said Miramontez.
The 0% down payment program applies to first-time and experienced home buyers for loans up to $ 765,600, while the 3% down payment program applies to loans up to $ 850,000.
Orange County’s CU is also cutting monthly payments by requiring lower mortgage insurance coverage than government-sponsored options like loans from Freddie Mac or Fannie Mae. It also waives the increased fees and interest rates typically associated with low down payment home loans.
A recent LendingTree analysis of 2019 census data found that the average cost of owning a home with a mortgage in the Greater Los Angeles area was $ 2,581 per month, while the average cost for renters was $ 1,545 per month. The $ 1,036 gap was the fourth largest among the 50 largest metros in the country.
In the Denver metropolitan area, homeowners on a mortgage paid an average of $ 1,877 per month, while renters paid $ 1,380. The $ 497 difference was ranked 32nd among the 50 areas.
The median sales price of an existing home was $ 341,000 in April, a record 19.1% year over year, according to the National Association of Realtors. The median sales price for a new home was $ 372,400 in April, an increase of 20.1%, according to the Census Bureau.