Will Donald Trump be good or bad for the housing market? It is far too early to say, but ultimately, it may depend on what side of the housing transaction you find yourself. So far, indications are that the Trump years may produce a more conservative market for home loans, especially for those with fewer resources and lower down-payment money.
Within hours of his inauguration, President Trump suspended a late order by the Obama administration that would have cut mortgage insurance premiums for Federal Housing Administration (FHA) loans – a move that should disproportionately affect lower-income borrowers as they are more likely to seek FHA loans with low down payments.
Predictably, FHA loan applications had increased in anticipation of the cut and dropped sharply after Trump's suspension of the cut. The week after the cut was reversed, mortgage applications fell by 3.2% from the previous week and FHA applications dropped by 13%. FHA refinancing applications were hit particularly hard, dropping by over 25%.
House Republican strategy under Texas Representative Jeb Hensarling, the Chairman of the House Financial Services Committee, has leaned toward protection of taxpayers against bailouts from riskier loans. Keeping mortgage insurance premiums at higher rates is consistent with that philosophy. That's to the detriment of consumers with lower credit scores and minimum down payments, as inherently riskier FHA loans may be their best (or only) option. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Hensarling's original PATH (Protecting American Taxpayers and Homeowners) Act would have raised the minimum down payment to 5% for any borrowers that were not first-time homebuyers. In addition, the PATH Act would have limited FHA program access in other ways during certain strategic times, including a "counter-cyclical market" where financial institutions would be under greater stress. The Act passed the House in 2013 but did not make it into law.
This PATH Act is not exactly the same as the PATH Act (short for the Protecting Americans from Tax Hikes Act) signed into law in 2015, but the two acts share the same Republican conservative principles toward taxes. Expect remnants of the original PATH Act that affect homeowners to be revived by Congress, although it may again fail to get past the Senate.
As for Cabinet influence, it's hard to say whether the appointment of Dr. Ben Carson as Secretary of Housing and Urban Development will make matters more or less difficult for aspiring homeowners. With no government experience, there is little record to go on.
It's not only lower-income Americans or mortgage borrowers with poor credit that could be affected over the next few years. Regardless of your financial status, you are likely to pay more in interest rates under the Trump administration. While the Federal Reserve has only raised interest rates once per year over the past two years, the Trump administration's stimulus policies are expected to create enough economic growth to cause the Fed to accelerate interest rate hikes – and higher mortgage rates will follow.
If you can afford a more traditional 20% down payment without overextending yourself, your mortgage loan options under President Trump may not be much different than they are now. Your primary concerns will be to shop around for the best interest rate and hope that housing supply in your price range finally catches up with demand.
For lower-income borrowers and those with poorer credit, it may be increasingly difficult for you to find a suitable home loan option during the Trump years. Don't overextend yourself; take the time to rebuild your credit and build up down payment money if you are falling short. However, if you can take advantage of the current rates and qualify for a home loan, you may want to act now. It could be your best opportunity.
If you are interested in refinancing your home loan, MoneyTips is happy to help you get free refinance quotes from top lenders.