First time home buyers are having difficulty buying a home because they are losing out on offers to investors and other buyers who have cash or willing to make larger down payments.
With the reduction of available homes to choose from, positive commentary about the real estate market and some signs the economy is improving, investors have returned to the market with plenty of cash. In addition, seller’s and their agents are well aware getting a mortgage from a lender is not an easy task and the number of deals which die because of financing issues remains high. Buyers seeking mortgages represents a risk to the seller.
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In addition, more than half of first time home buyers use FHA (Federal Housing Administration) loans, which have a minimum down payment of only 3.5 percent of the purchase price. This is great loan for the buyer but the FHA requires home sellers to pay some costs, including repairs, which conventional loans don’t. As a result sellers are more likely to consider other offers which have less cost to them and generally can close faster than a sale with an FHA loan.
Offers with FHA loans get pushed to the bottom if there are other buyers. This is especially true with short sales where the seller is not going to receive any of the proceeds and the short sale lender is unwilling to pay repair costs. First time buyers who need to use the FHA loan because of the low down payment requirements are virtually cut out of the short sale listings which continue to make up a significant portion of our Sacramento housing market listings.
According to recent report by the National Association of Realtors, first time home buyers have generally accounted for 40 to 45 percent of the market. More recently they now are about 35 percent of the market. I don’t see this changing much until we see the number of distressed properties on the market decline as a percentage of all available homes for sale and lenders start competing to make loans and not work so hard to find ways to decline them.
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