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Hispanic Financing Trends and the Role of the Buyer Agent – 2023 SHHR Excerpts

The State of Hispanic Homeownership Report contains a wealth of information based on the Census, Consumer Finance Protection Bureau, and other official data sources and from insights from buyer and seller agents based on direct input. Here are excerpts from the report about financing trends and the importance of buyer agents in the home buying process. (Source: NAHREP 2023 State of Hispanic Homeownership Report)
Hispanic Financing Trends

Conventional financing increased with Hispanic homebuyers

Latinos have historically relied on low down payment mortgage options for home purchases. As recently as 2018, nearly one-third (31.3 percent) of Hispanic home purchase originations were done through FHA, almost twice the rate of the general population. While Latinos are still more likely to utilize FHA products than non-Latinos, that trend may be shifting. In 2022, only 24.7 percent of Latinos purchased a home using FHA products, compared to 65.6 percent who used conventional. [i]

This shift can be attributed to a number of different factors, including market competition and the availability of low-down payment conventional products. In a highly competitive housing market, low-down payment clients are at a competitive disadvantage in the bidding process. 2022 in particular was a challenging year for homebuyers, as sellers with multiple offers often went with those that were perceived to be the easiest to close, typically cash offers or conventional loans with lower loan-to-value ratios.

FHA financing is more attractive in a high interest rate environment

While the proportion of Latino buyers using FHA loans declined between 2018 and 2022, there may be an uptick in 2023. Several top-producing buyer agents interviewed as part of NAHREP’s practitioner study noted an increase in FHA lending, with several noting that FHA offered better rates in 2023 than many of their conventional counterparts. Iris Rivera, an agent in Vineland, New Jersey, explained, “Even when [buyers] could go conventional, a lot of times we were telling them, ‘This is why it would be worth going FHA.’ Yeah, because of the interest rates. In 2022, we were urging them to go conventional to get their offer accepted because you had to stand out in 2022.” With less competition, buyers choosing to finance through FHA were less likely to be passed over for a cash or conventional buyer. Luz Colon (Valrico, Florida) reaffirmed this trend, “…people were going FHA even if they could go conventional, I would say. From June to July, we had a lot more FHA [buyers], and a lot more sellers now having to be more comfortable to accept it because the rates were better than conventional.”

FHA loans are also critical homebuying tools for the Hispanic community because they have higher debt-to-income (DTI) ratio caps than most conventional loans. This gives those with more moderate incomes greater purchasing power at a reasonable rate. Edgar Garcia (El Paso, Texas) noted, “Our trend was we had to go FHA…because of the debt-to-income ratios that were higher…most of the buyers, 90% of the buyers were definitely going FHA [in 2023]. And I think it’s going to continue this route [in 2024] as well.” In addition to higher DTI caps, FHA approval amounts may also be higher than conventional loans, as Suselle Salermo of Cranford, New Jersey described. “Buyers approved for an FHA loan have more buying power, so they can afford more,” she said. “If, for instance, let's say, I have a buyer that's pre-qualified conventional for $500,000. They may be pre-approved with FHA for $550,000. So, they have $50,000 more to play with…” While the rate of Hispanic buyers choosing FHA over conventional loans decreased from 2018 to 2022, this trend may shift if higher interest rates and affordability challenges persist.

Hispanic homebuyers continue to face higher denial odds

Hispanic homebuyers are still more likely to be denied mortgage financing than their non-Hispanic counterparts. In 2022, Hispanic or Latino applicants were 54 percent more likely to be denied than non-Hispanic applicants. This figure increased to 75 percent for those applying for a conventional purchase loan. DTI ratios were noted as the number one denial reason for Hispanic home purchase applicants for the last two consecutive years. Importantly, however, for Hispanic applicants seeking an FHA loan product, denial odds were significantly lower. In 2022, Hispanic applicants were only 5 percent more likely to be denied FHA financing than non-Hispanic applicants. [ii] As such, FHA financing options may be both more accessible and affordable for Hispanic buyers, particularly given the importance of higher DTI ratio limits and lower relative interest rates in the current market.

Increased accessibility of ITIN loans boosts immigrant homeownership

Homeownership opportunities are becoming more accessible for immigrants who use Individual Taxpayer Identification Numbers (ITIN) rather than social security numbers to apply for a mortgage. Historically, most banks did not offer ITIN loans, and, despite being high-performing, they typically have much higher down payment requirements (generally, around 20 percent) and higher interest rates than conventional loans. [iii]

During NAHREP’s 2023 practitioner interviews, real estate agents across the country spoke of the increased accessibility of ITIN loans, noting new loan products with lower down payments and interest rates. Irma Rodriguez (Newark, Delaware) said, “There's a program that's out now and ITIN buyers, all they need is 5% down, which is helping a lot. But in the past, it was 20%, 10%. Recently, it came down to 5%. That's encouraged the ITIN buyers to come down and start buying.” A staggering 50 percent of Andreina Canache’s (Duluth, Georgia) buyers in 2023 used some form of ITIN loan, including one requiring only a 3.5 percent down payment. Similarly, Maria Rosales (Bakersfield, California) noticed banks “coming up with more flexible programs” for ITIN buyers.

One exception to this trend was Junior Ibarra (Des Moines, Iowa), who pointed out that the opposite was true in his market last year. Historically, local credit unions and other banking institutions in Des Moines have offered ITIN loans with 5 percent down payment options, he said. However, this changed in 2023. “When all of these volatile interest rate hikes and liquidity issues were hitting the banking institutions or credit unions,” Ibarra said, “[ITIN loans were] the first thing to go because most of them have to be in-house…As soon as the liquidity issue started making its way across the country, some banks [became] more reserved with what type of loans they were offering…and that hurts the Latino market and the immigrant community market.” For many immigrants, ITIN loans make homeownership possible. Accessible ITIN loan products are, therefore, critical to Hispanic homeownership and to the Latino community more broadly.

Share of Hispanic investment property originations is on the rise

The share of Hispanic home purchase originations for second homes and investment properties is on the rise. In 2018, 6.4 percent of Hispanic purchase originations were for a property outside of their primary residence. In 2022, that share increased to 7.8 percent. [iv] Agents took note of an increase in 2023, as buyers purchased investment properties with the intention of either flipping them quickly or holding them more long-term. Pablo Galarza (Chicago, Illinois) said,
“Everybody started jumping on board [in 2023]. I mean, I've never had so many rehabbers at one given time.” Liz Alarcon (Fairfield, California) found this short-term real estate investment trend to be particularly prevalent among her Latino clients. “I do see a lot of investors, now more than ever, which I'm super proud of…I absolutely see more [investors] than the past years…I'm working a lot with Latino buyers that want to do a lot of flips.”

In addition to Hispanic buyers hoping to flip a property for a quick return on their purchase, there are also those investing in real estate with more long-term goals. Phillip Lopez (San Antonio, Texas) mentioned working with a number of buyers who planned to use second properties as wealth-building vehicles over time. “We work with a lot of different investors,” he said:
A lot of people last year were [realizing] this is still a good time to buy a secondary home for an investment and treat it as a long-term investment for themselves or for their kids that are going to college at some point...We did see a lot of people pulling out from those 401ks and utilizing them [to purchase] rental properties that are going to keep making money and, ultimately, take the equity out 15 to 30 years from now.
Cases like those described by Lopez are prime examples of how real estate can be used as a tool to build generational wealth and support a family’s long-term financial stability.

Buyer’s agents play a big role in preparing homebuyers

Competent buyers’ agents are critical in moments of uncertainty and act as primary educators for consumers on issues like market conditions, the home buying process, and the most feasible financing options. Jesus Covarrubias (Houston, Texas) emphasized the importance of “coaching [buyers] on the way the market took a shift,” while Liz Alarcon (Fairfield, California) recalled buyers’ constant concerns regarding interest rates, but remained committed to educating the Latino community on the long-term value of homeownership, as opposed to renting. Rather than fixating on rate, she prioritized “getting [buyers] into a home by focusing more on payment than rate.” By doing so, she helped buyers realize their dream of homeownership and invest in their own financial future, avoiding the prevalent fearmongering surrounding the higher interest rate environment.

Many agents also spoke of educating buyers about the increased competition that follows significant rate drops. “If I guided them the correct way,” Sandra Moreno (Indianapolis, Indiana) said, “they might have said that the interest rate is high right now, but if you buy now, it's better than [waiting for] a low interest rate. Later on, you may have a lot of customers [trying to buy] the same property for more money.” Agents’ efforts to educate clients on both the value of homeownership and the smartest ways to make that dream a reality are critical in all home purchases, but especially in challenging markets.

Source: 2023 State of Hispanic Homeownership Report

Disclosure: Please note that the information provided in this article is for educational and informational purposes only and should not be construed as financial advice.
[i] Consumer Financial Protection Bureau, “HMDA 2022 Home Purchase Originations Data, Calculations Made in HMDAVisionTM”; Consumer Financial Protection Bureau, “HMDA 2018 Home Purchase Originations Data, Calculations Made in HMDAVisionTM.”
[ii] Consumer Financial Protection Bureau, “HMDA 2021 Home Purchase Originations Data, Calculations Made in HMDAVisionTM,” 2023; Consumer Financial Protection Bureau, “HMDA 2022 Home Purchase Originations Data, Calculations Made in HMDAVisionTM.”
[iii] CrossCountry Mortgage, “What Are ITIN Loans?”
[iv] Consumer Financial Protection Bureau, “HMDA 2018 Home Purchase Originations Data, Calculations Made in HMDAVisionTM”; Consumer Financial Protection Bureau, “HMDA 2022 Home Purchase Originations Data, Calculations Made in HMDAVisionTM.”
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