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<p>Nearly 1.7 million buyers purchased a first home during the past year, a group central to the real estate market. There would be far fewer sales without them, and with reduced demand less ability to raise prices.</p>
<p>“While first-timers lack the equity existing owners can bring to the table, many are doing well,” said Rick Sharga, Executive Vice President with <a href="https://www.realtytrac.com/">RealtyTrac</a>. “Zillow reports that in 2019 the typical household income was $65,700 while first-time buyers took in $77,500. No less important, many first-timers augment their finances with money from friends and family, mortgages with little down, and by purchasing with help from down payment assistance programs.”</p>
<p>Importantly, there are a lot of first-time buyers. They represent about a third of all existing home transactions today, something real estate investors and property owners in general won’t want to ignore when it’s time to sell.</p>
<h2>Who is a first-time buyer?</h2>
<p>It might seem that the definition of “first-time buyer” is fairly obvious, but that isn’t always the case. For instance, Freddie Mac says someone can be a first-time borrower even if he or she “had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase.” Other special rules can also apply.</p>
<h2>The disappearing first-time buyer</h2>
<p>First-time buyers represent a large share of the existing home market. According to the National Association of Realtors (NAR), in 2021 “82% of buyers 22 to 30 years and 48% of buyers 31 to 40 years were first-time home buyers. Behind these groups, 22% of buyers 40 to 54 years were also first-time home buyers.”</p>
<p>First-timers, as a group, plainly do not have the financial resources enjoyed by those who own or have owned real estate. NAR figures show that in 2021 the median down payment was 7% for first-time purchasers versus 17% for repeat buyers. The important point is that even with less down, first-timers can become buyers, people who make sales happen.</p>
<h2>Affordability</h2>
<p>Homes have become less and less affordable, especially during the past two years, and the impact from higher prices is plainly visible.</p>
<p>In 1981, according to NAR, first-timers represented 44% of all existing purchasers as compared with 34% in 2021. In the same years, first-time buyers got older (29 years versus 33 years), repeat buyers got far older (36 years versus 56 years), and typical down payments shrank (20% versus 13%).</p>
<p>The year 1981 not only had a lot of first-time buyers, it also had steep interest rates. Really steep. According to Freddie Mac, the annual interest rate in 1981 was 16.63%, the highest on record.</p>
<p>First-time buyer activity is down even further as we move toward 2022. The latest available data shows that first-time buyers represented 29% of October existing sales and just 26% in November, according to NAR.</p>
<p>Given annual sales of roughly 6.46 million existing units this year — the annual projection reported by NAR for November – 26% of the market equals nearly 1.7 million first-timer transactions.</p>
<h2>First-time buyer programs</h2>
<p>The real estate market is not especially welcoming to first-time buyers. Home prices were up by double digits in both 2020 and 2021 so down payment cash requirements have increased. Interest rates at year-end were on the rise, not by much but still higher. Debt is a big qualification problem for many borrowers. And, perhaps most importantly, income certainty is an issue for everyone in a pandemic economy.</p>
<p>No doubt many buyers are overwhelmed when they look at the market, but there are ways for them to become owners and also very good reasons to do so: the Federal Reserve says that property owners had a median net worth of $255,000 in 2019 versus $6,300 for renters.</p>
<p>The way to create more first-buyers – the way to return to the first-time market share seen in past years – is to show that the down payment hurdle is surmountable. Here’s how:</p>
<ul>
<li>The FHA program is open to buyers with 3.5% down and credit scores as low as 580. Almost 85% of FHA forward-loan borrowers are first-timers – that’s more than 715,000 loans in fiscal 2021.</li>
<li>The VA makes financing available to qualified vets with zero down. In addition, the VA’s up-front funding fee can be rolled into the mortgage amount, a big cash reduction for borrowers.</li>
<li>With the USDA program, explains <a href="https://themortgagereports.com/14969/usda-loans-home-mortgage#work">TheMortgageReports</a>, “buyers can finance 100% of a home’s purchase price while getting access to better–than–average mortgage rates. This is because USDA mortgage rates are discounted as compared to other low–down payment loans.”</li>
<li>Financing with just 3% down is available to qualified borrowers through the HomeReady (Fannie Mae) and Home Possible (Freddie Mac) programs.</li>
</ul>
<h2>Down payment assistance programs</h2>
<p>In addition to savings, there are a wide assortment of down payment assistance programs. These programs – which are often very favorable for qualified first-time buyers – can include outright grants, interest rate reductions, state and local tax benefits, and forgivable second mortgages. More than 2,000 down payment assistance programs are listed by location at the <a href="https://downpaymentresource.com/">Down Payment Resource</a> webpage.</p>
<p>Also in the assistance “category” are such sources as help from Mom and Dad, companies, unions, and nonprofit organizations.</p>
<p>What is the effect of mortgage programs with little down and lots of assistance for first-time buyers? Think of those 1.7 million transactions, a number that makes the first-time buyer market worth exploring.</p>


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