The National Association of Realtors chief economist, Lawrence Yun, in a Washington Post article last month, estimated there were 2.2 million fewer first-time home buyers in the U.S. between 2008 and 2012.
Normally, according to Yun, first-time buyers represent roughly 40% of home sales. Lately, though, they have been involved in about 30%-35%. That’s a big drop. Why?
Unemployment, tight credit and lending standards, and student debt all are contributing factors. The problem is that without entry-level buyers, the housing system does not work very well. If there is no-one to buy moderately priced starter homes, the owners of those houses can’t sell and move up. The cycle can’t complete itself.
In part, this void has been filled by investors who are paying cash. But at some point, as prices rise and the investment is not as lucrative, cash investors will pull out of the market. What happens then if unemployment and tight lending remain as barriers for first timers? What kind of market are we faced with?
I don’t know the answer. But, I have two suggestions that may help first time buyers right now.
First, Union Bank has a program called Equal Opportunity Mortgage – EOM. This program is designed for low to moderate income earners. Qualifications are based on the median income levels in a particular area, and up to 95% financing may be available. Fees are reduced, no PMI is required, and Union Bank sets its own rules because they keep the loan! To get details, contact Randy Deshler at randy.deshler@unionbank.com or 909-838-5620.
Second, if you are selling your property and have a lot of equity( 60%+), you could consider offering your first time buyer a seller carryback. Ask for a sizeable downpayment – maybe the buyer’s parents can help. Have him run his own credit report and give you a copy. Amortize the loan, use an interest rate of 7%+, and have a servicing company handle the payments for you. The small fee is worth it so you won’t have to deal with it, and they can report timely payments to the credit bureaus that will help your buyers credit standing. If you are happy receiving the payments every month, you will now have a source of income. As your buyer stabilizes, perhaps he will be in a position to get a loan and pay you off early. On the other hand, if you prefer to cash out sooner rather than later, your well structured note should be attractive to a notebuyer, so you can cash out after receiving a few payments.
Tough markets create voids. Creative solutions help fill those voids.
