(Originally posted on March 5, 2014 – Updated on Nov 26, 2014)

Things are not always as we imagine. The largest tire manufacturer in the world? Lego, who made 318 million tires in 2012.

I learned that tidbit returning home after speaking to an MBA panel about Ability-to-Repay (ATR) and Qualified Mortgage (QM). I had exhausted the reading material I brought with me and succumbed to reading the airline magazine, thanks in large part to a delay that left us sitting on the tarmac. Again, things are not always as we imagine.

Take for instance first-time homebuyers, who historically make up about 40-42% of the purchase market. According to the National Association of Realtors, first-time homebuyers in January 2014 accounted for 26% of the purchases, down from 27% in December and from 30% in January of 2013. NAR’s Profile of Homebuyers and Sellers released in November 2014 reports first-time homebuyers were actually 33% of the purchase market for the time between July 2013 – June 2014.

Perhaps not what we imagined as we all geared up for the purchase market everyone is forecasting this year to be. Several reports in the media point to rising student debt levels of the Millennial generation as a primary reason. And it certainly is a valid concern.

However I would argue there is also an abundance of misinformation that our first-time homebuyers face. I believe there are many who could afford to buy a home and qualify for a mortgage and simply don’t realize it. They aren’t sure what it truly takes to get a mortgage. Case in point, in April 2014, Loan Depot released a survey that showed that 56% of renters who said they’d prefer to own weren’t pursuing it because they felt they would not qualify. Of that group, 74% admitted they had not taking any steps to find out what it takes to qualify.

(They also may not realize that many lenders MGIC works with allow for 100% of their down payment to come from a gift.)

True, the debt some Millennials carry may impact their DTI which could impact if they qualify for the loan. However, for as much coverage as the media gives to the 43% DTI limit for QM, it often overlooks that ATR actually does not set a maximum DTI limit. And of the four ways to qualify for a QM loan, only one — general QM — sets a DTI limit. Loans eligible for purchase to Fannie Mae and Freddie Mac for example do not have a DTI limit and yet would qualify for QM. (Note: A loan only needs to qualify for purchase, not actually be sold to one of the agencies.)

Here though is another thing to consider about the most college-educated generation in our lifetimes. They have a higher household income than the general population. According to an MSN Money report, 60% of college-educated Millennials report an annual income of at least $50,000, compared to a national average of 50%. That too may help with their DTI ratio, and may also be something you didn’t imagine was the case.

Have some additional insights on first-time homebuyers or Millennials? We’d love to hear them. Share your thoughts in the comments below!

Vance Edwards, CMB

Vance Edwards, CMB - MGIC Marketing Program Director

Vance Edwards joined MGIC in 1999 and currently serves as MGIC's Marketing Program Director. Among Vance’s responsibilities is heading up MGIC’s Marketing Promotions Team which oversees MGIC sales training efforts, marketing of MGIC programs and co-branding efforts with MGIC customers.

In addition, Vance leads MGIC initiatives with Realtors and consumers, especially first-time homebuyers. He has spoken numerous times to Realtors® and loan originator audiences on topics including: first-time homebuyers, QM, economic overview, mortgage industry, and sales skills.

Vance lives in Menomonee Falls, Wisconsin with his wife Carrie and children Hailey and Trevan.

Vance is a certified FICO professional and earned a Certified Mortgage Banker ("CMB") designation from the MBA.

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