Real Estate News

Are conditions easing for first-time buyers?

Published: 09 Aug 2017

For years, many young adults have been held on the sidelines of the housing market thanks to stringent lender requirements and, often, personal financial obstacles that were difficult to overcome. However, those conditions are starting to ease, as lenders are now more accepting of a broader range of would-be borrowers, and the improving economy is putting more people in a position to buy, even as other forces may act as deterrents.

There are plenty of reasons first-time buyers - a group mostly populated by millennials at this point - may have faced headwinds in the past, and some still linger, according to The Washington Post. The good news is that young adults are starting to earn more money from their jobs, which puts them in a better position to pay off the often sizable student loan balances they carry and start building savings. Moreover, as time goes on, these conditions will typically also allow them to build a stronger credit profile.

But with home prices rising and mortgage rates expected to do the same, there may still be some hurdles ahead. In addition, young adults tend to want to live in more urbanized areas, where homes necessarily carry higher price tags.

Mortgages are becoming easier to obtain on a few fronts.Mortgages are becoming easier to obtain on a few fronts.

Lending a hand
The good news for first-time buyers is that lenders are starting to be more forgiving as the economy improves. Credit-related requirements for mortgages are declining, and now lenders are also starting to be more lenient about the size of the down payments they mandate for a home purchase, according to the latest Mortgage Monitor Report from Black Knight Financial Services. Over the past 12 months, about 2 in 5 mortgages - amounting to 1.5 million home loans - had down payments of less than 10 percent, and the number of those between 5 percent and 9 percent grew at twice the rate of all lending.

"However, low-down-payment purchase lending today has a much different risk profile than it did back in 2005-2006 during the run-up to the financial crisis," said Black Knight Data and Analytics executive vice president Ben Graboske. "At that time, half of all low-down-payment purchase originations involved 'piggyback' second liens, as opposed to a single high-LTV first lien mortgage."

As mortgage risk - which title insurance is designed to protect against - declines, lenders will be more likely to keep broadening standards in the face of the improving economy.

Some buyers still wary
However, it's worth noting that there was a slight decline in buyer sentiment in July, driven largely by suspicions as to whether now is the right time to make a purchase, according to the latest Fannie Mae Home Purchase Sentiment Index. While sentiment is still near all-time highs in a lot of ways, only 30 percent of respondents believe now is a good time to make a purchase, and nearly half of respondents also think mortgage rates will probably rise in the next 12 months.

With these issues in mind, consumers would be wise to get into the market as soon as possible, as both rates and prices will probably increase before the end of the year.