New Rules: 1st Time Home Buyers
Until recently, first-time buyers comprised 40% of home sales; now down to 29% and falling. The leading causes: fees on most new mortgages rising, new proposals from the Obama administration causing mortgages to be more costly and limiting size, and lenders requiring larger down payments. Also, lenders are making it harder and more expensive to deter the risky borrowers and minimize defaults. As a result, opportunities for first-time buyers may be closing.
– Larger Down Payments: Insurance fees on the government-insured mortgages that require just 3.5% down have doubled in 7 months (up to 1.15%). Down payments have been rising since mid 2010 and now average 34% of the purchase price.
– Expect Competition: Cash buyers have made a great impact on the market last year with 32% of purchases being cash – up from 26% a year ago. Sellers are more apt to accept these offers to avoid waiting for lender financing. To steal the lead, first-time buyers can present an offer with few contingencies. Offers from buyers who only ask for a home inspection and appraisal are more likely to get accepted than all-cash bids with a long list of repairs.
– Home Sweet Home: Buying a house has become a long-term investment now; realistically, 10 years long if buyers are hoping to make a profit or just break even. As mortgage fees rise, buyers have to recoup a larger cost which takes more time. Adding to the issue is the slow growth expectations in home prices over the next decade. Furthermore, first-time buyers might consider avoiding homes that require costly renovations so as to not add to the timeline.