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Challenging Times for First-Time Homebuyers

Fewer first-time homebuyers are finding a way to buy a house with a relatively low down payment as their options shrink and lenders’ down payment requirements rise.

From April through June 2014, about 67 percent of first-time buyers made a down payment of 6 percent or less, down from 74 percent in 2009, according to the latest Realtor Confidence Index report from the National Association of REALTORS®.

One reason the average down payment is growing may be that more and more first-timers are choosing conventional over FHA financing, which requires only 3.5 percent down.

Underwriting standards have been getting tighter and borrowers’ costs are going up. Tight underwriting standards are especially challenging for first-time buyers, who generally need mortgage financing with low down payment terms, who may be paying off student debt, and who may have credit scores that are not top-notch. Cumulative increases in FHA insurance premiums over the past two years that translates to about $100 a month in additional out-of-pocket costs for borrowers also is also discouraging buyers from using FHA financing, according to Realtors participating in the survey.

Higher down payments are one more factor making life difficult for first-time homebuyers, who accounted for 28 percent of June home sales, a slight uptick from 27 percent in May but a long way from the 40 percent share that first time buyers typically accounted for just two years ago.

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