First Time Home Buyers Do Still Exist – But They Are Challenged

First time home buyers historically made up around half of the existing home sales market. In May, they accounted for only 35% of sales, according to the National Association of Realtors. With interest rates at historic lows, and a lot of value-priced inventory, it would seem that first time buyers would be experiencing a “perfect storm” in the housing market. However, they’re not buying, with some fearful and others just unable to buy even though they would like to.

The Fear

Joblessness is still high and not improving, so younger first time home buyer candidates are concerned about their incomes. They also wonder where the bottom will be for home prices. With foreclosures still entering the market at a rapid clip, they fear buying and going into negative equity right away. This is aggravated by higher down payment requirements, as they will be committing a large cash infusion into a home, and they want to see it remain at least stable in value.

Getting a Mortgage

It takes deep pockets these days to buy a home with a mortgage. While you can get an FHA loan for as low as 3.5% down, some mortgage brokers are recommending them only as a last resort. The reason is fees. FHA charges an upfront mortgage premium of 1% of the loan amount, plus an annual premium of 1.15% of the loan balance, paid in the monthly payment. These fees are totally avoided or reduced with higher down payments between 10% and 20%.

Before the 2007 crash, you could “get a mortgage if you had a heartbeat,” according to one mortgage broker. Now it’s the biggest challenge, even surpassing the down payment. It takes a credit score of 620 or higher to even get into the game, and if you’re at 619 or below, you’re probably going to sit on the bench.

Some help is coming from parents and relatives, as they see this as a great market for their children’s first home. Some are actually buying them and collecting payments from their children, while others are loaning or gifting them the down payment. Investors looking to flip to younger buyers should study all of the lending alternatives out there, as well as grants and aid for first time home buyers. Showing them a way to make it happen can tip the scales in favor of buying.