Do you ever wonder how much lending practices really affected the Tallahassee housing market? We read so many stories about "predatory lending" and abused government loan programs, that I got a little curious and decided to check out the history of mortgage loans in Tallahassee.
I decided to limit my sales information to "arms length home sales" only, for two basic reasons. First, it would reduce the amount of sales that I would have to screen, and second, it would represent a truer picture of the normal real estate lending practices in Tallahassee.
Different Home Loan Types In Tallahassee
Over the past twenty years, there have been five main sources of funds for home buyers in Tallahassee. Home buyers have completed their purchases with conventional financing, FHA financing, Cash, VA Loan financing, and individual financing. I was a bit surprised to see that FHA has only financed 16% of the closed home purchases since 1991.
FHA Loans Becoming More Popular In Tallahassee
The popularity and usage of FHA loans is growing in Tallahassee. When we look at a graph of Combined Loan To Values in closed arms-length home sales in Tallahassee, the reason begins to become mighty clear.
This real estate graph shows that the most popular loan (Conventional) has seen the average combined loan to value drop from nearly 88% two years ago, to below 80% today. That 8% difference represents an additional out of pocket cash requirement for home buyers of $13K on the median home in Tallahassee.
FHA Loans Versus Conventional Loans
When we compare the conventional loan product to the FHA loan product, we see that the out of pocket cash requirement seems to be driving the train. As an example, if you wanted to finance a $165K home purchase in Tallahassee, you would need a down payment of $3,500 using FHA financing, but you would need nearly 10 times that much ($33,150) to use a conventional loan product, based upon the averages reported this year.
What this graph shows is that the Combined Loan To Value (C-LTV) of each loan program has dropped recently, but conventional loans have dropped below 80% on average, while FHA loans have dropped to just below 98%.
The vertical bars in the graph show how usage of conventional loans has plummeted since 2007, while during the same time frame FHA loans have been on a sharp rise. This means that FHA loans are more popular than ever, while conventional loans have dropped to the same level as 1991.
It appears as if the conventional loan market has moved to a safer level, while the government loan market (FHA) has stayed at a level which offers Tallahassee home buyers a "low money down" opportunity when buying a home. Time will tell if the government loan programs will tighten up even more, following the lead of the conventional market.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.