Last year first-time home buyers accounted for 50 percent of all homes purchased. In 2011 their share of the market has fallen to 37 percent which is close to the historical average of four out of every 10 buyers according to the National Association of Realtors. Is the lack of a First-Time Home Buyer Tax Credit, which expired in September 2010, responsible for the dramatic drop? To be sure, the tax credit was a motivating factor for many home buyers but it is not the only explanation for the high numbers of homes sold to first-time home buyers in 2010 and the subsequent drop off in 2011.
Banks/lenders have been responsible for two other factors hindering first-time buyers. They have made lending requirements more strict for everyone. Whether you are a first-time or repeat buyer, lenders are going through borrowers finances with a fine tooth comb. Everything from proof of income to asset verification to small bank deposits is subject to more scrutiny than in the past. The other factor has been that banks have foreclosed on fewer homes in 2011 because of questions surrounding their foreclosure practices. Many banks had been foreclosing on homes without being able to prove that they actually owned the mortgage and there were so many homes to foreclose on that they hired third parties to sign the foreclosure documents. They seem to have corrected these problems as we saw a rise in foreclosures in October.
If foreclosure rates continue to rise and as a result we find more bank owned homes for sale, there could be another increase in the number of first-time home buyers. Despite the tighter lending requirements bank owned homes are attractive to first-time buyers because of price. Bank owned homes generally sell for 20 – 30% less than traditional sales. Another thing that makes bank owned homes attractive to buyers who plan to occupy the home is they often don’t have to compete with investors. Fannie Mae and Freddie Mac require that their homes be on the market for 15 days before they will consider an offer from an investor.
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