First-time Buyers Rebound

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First-time buyers are driving the expectations that a recovery has begun. Their numbers and market share are growing despite financing roadblocks and competition with investors for entry-level homes.

The first-time buyer market share is holding its own. First-timers representing 35 percent of purchasers in April, up from 33 percent in March and 30 percent in December but below the 50 percent share during the height of the first-time buyer tax credit in 2010. Sales of entry level homes under $100,000 have risen to 23 percent of all home sales in April, up from 15 percent in 2010-2011.

Difficulties getting financing have plagued first-timers. Stricter lending standards established following the subprime meltdown in 2006, including higher down payments, have made it more difficult for younger buyer. In fact, indications are that this year conditions are getting tougher for borrowers, not easier. Lenders actually closed a smaller percentage of purchase mortgage applications in April than they did in March, according to the latest Ellie Mae Origination Report. A survey by Inside Mortgage Finance found that the share of home purchases that were financed in March fell to 65.7 percent from 68.1 percent a year ago and 74.5 percent in March 2010.

Many first-time buyers have turned to FHA financing, which requires a lower down payment than conventional financing. FHA market share has increased steadily from 24 percent of all mortgages in September to 28 percent in April. The median FICO score for FHA purchase loans closed in April was 701, according to Ellie Mae.

In a Move, Inc. survey last fall of potential buyers who plan to buy in the next two years, 55 percent said they lack the money for a down payment and /or closing costs and another 34.5 percent were concerned about their ability to get credit.