It's 2015 and the spring real estate market is just around the corner, for many would be home buyers this will be their best opportunity in years to find not only a home but the home. The only problem problem is that there is one group who will most likely miss the chance.
First time home buyers as a group shrunk to a measly 26% of all real estate home sales in 2014, that is almost 10% below the historical average and over 15% below their peak in 2005.
So what's problem? why are first time buyers disappearing from the market? We have identified 5 factors that may have prevented you from buying that first home and how changes in the market may help make it easier for you to buy that first home.
1. You didn't Qualify - When the real estate market crashed in 2007 mortgage lenders completely changed the way they lend money. Gone were the Stated income and easy no money down loans, replaced by higher down payments, higher credit score requirements and lower debt to income ratios. This left an extremely high number of first time buyers left out in the cold.
So what has changed? - Now that the real estate market is back on solid footing and foreclosures have subsided, lenders are now lessening their restrictions. Credit score requirements are lower and so are the down payments (3 to 3.5% in most cases instead of 10 to 20%) and the debt to income ratios have increased.
2. Choice of Homes and Competition - Many first time buyers tried to get into the market but gave up, they were dismayed by the lack of available homes and the competition from home investors (mostly paying with cash) that bought up all of the best homes.
So what has changed? - Inventory for one thing, as prices rose and the number of first time buyers shrank the number of available homes has grown. Even better, the slight increase in prices has driven most investors from the market. That leaves more homes for you to choose from.
3. Student Loans are killing me - For many first time buyers the crunch of high student loan debt repayment has erroded your ability to qualify for a home. Student Loan debt has increased to over 1 trillion dollars since the start of the Great Recession.
So what has changed?- Higher allowable debt to income ratio's and significantly lower interest rates have made it much easier to qualify for that first home. FHA also announced just this week that they are lowering the monthly mortgage insurance rates to help make homes more affordable and help first time buyers qualify.
4. Home ownership is not a priority - For the Millenial Generation home ownership is something that their parents dreamed about. Home ownership for some is just not in the cards, they don't see the advantages or just don't want to be tied down to a home in case their dream job opens up in another city or state.
So what has changed?- Price appreciation is what has changed. It was easy to overlook home ownership when prices were decreasing and it seemed like every other home was being foreclosed. Also as the cost to rent rises it has become much cheaper to own a home instead of renting, especially when you factor in the tax benefits.
5. Can't afford the down payment - Part of this is misconception and part is truth. After the housing melt down, mortgage lender Fannie Mae eliminated 3% down mortgages but many news outlets reported that you couldn't buy a home without 20% down payment when you could buy a home with 5% down for Fannie Mae and 3.5% FHA.
So what has changed? - Fannie Mae has reinstituted their 3% down mortgage program and several local lenders are once again offering loans with no down payment needed.
So how will 2015 be remembered? Will it be the year that first time homebuyers return to the market and take advantage of the lowest interest rates in history or will it be remembered as the year that first time buyers missed the boat?
Mike Russell is a REALTOR with Keller Williams Realty. Mike specializes in Johnson County Kansas Homes and Real Estate for sale. Mike is a tech savvy realtor with over 17 years experience. Did you enjoy Mike's Blog? Feel free to subscribe or join Mike on his Social Network to stay up to date on Overland Park, Olathe, Leawood, Lenexa, Shawnee and all of Johnson Counties real estate news and more...
Mike Russell & Associates can be reached at 913-266-5828 or MRussell@KW.com or www.SearchjocoHomes.com