Many millennials are finally becoming homeowners — thanks to lenders who are adapting to a more sophisticated pool of buyers.
The use of stock options and other assets has helped borrowers boost their income levels to qualify for pricey apartments in the city, according to agents and lenders. The shift has highlighted changes in how compensation packages are structured — and how that’s delayed some buyers’ purchases.
“When you deal with New York City, you’re dealing with more sophisticated buyers,” said Ace Watanasuparp, a vice president at Citizens Bank. As more companies offer payouts that include stock options, “banks are figuring out how to utilize it,” he said.
It’s particularly popular among millennials, he said, especially those who work in the technology and finance industries. Citizens accepts stock options toward income level if they’re able to be liquidated and the employee is expected to continue receiving them, Watanasuparp said.
Similarly, Bank of America considers vested stock options eligible assets, according to a spokesperson. Citibank allows restricted stock options and restricted stock awards if customers have a history of receiving them and that income is anticipated to continue — a standard used across the board. While Citi’s guidelines aren’t new for the bank, they’ve become more commonly used.
The willingness of lenders consider these sources of income has allowed more younger buyers the ability to purchase, said Jarrod Guy Randolph, an agent at Compass. Many of his clients have complicated compensation packages, he said. So lenders have “had to be smart about how they look at the entire portfolio.”
With nonbank lenders, some guidelines can be more flexible, said Alan Rosenbaum, CEO of Guardhill Financial. Even if a customer doesn’t fully meet requirements related to income, debt and reserves, lenders are willing to look at deals on a case-by-case basis, he said. In part, that’s a loosening up of rules set in place after the financial crisis — which some deemed too strict.
“We’re seeing a more realistic, more common-sense approach to underwriting,” said Rosenbaum.
At the same time, the share of nonbank mortgage lending is increasing in the city. Last year, 29 percent of home purchase loans in New York were made by nonbank lenders, up from 22 percent in 2013, according to the Association for Neighborhood and Housing Development.
It’s not a lowering of credit quality, Rosenbaum said — but looking at the “whole picture.” If the income level is slightly lower than necessary, for example, but the down payment is substantial, that shows a borrower’s liquidity and ability to save.
For some borrowers, stock options have been necessary to qualify for a prime rate loan, said Mira Dick, senior managing director at Luxury Mortgage Corp. One, for example, was a customer who worked in the tech industry. Without stock option income, their debt ratio would’ve been 46 percent, too high to qualify for a prime rate loan. Adding stock option income based on a 24 month average brought the debt ratio down 10 percent — allowing them to qualify, Dick said.
The most important consideration is whether a borrower can liquidate the asset and how quickly, said mortgage broker Melissa Cohn. Cryptocurrencies, for example, tend not to be liquid — and have been very volatile.
“The key is, can you monetize?” she said. “And in a way that is satisfactory to a third party?”
Many millennials are entering the housing market later than the previous generation, Compass’ Randolph said. And that’s in part due to pay changes as prices have climbed: having to wait for stock awards to vest in order to be able to use them toward the purchase.
“Compensation has not kept up with the appreciation of the price of real estate,” he said. “But now the late-aged millennials are coming into the market and purchasing because their jobs and compensation are allowing them so.”