The chance to buy your first home is not only a personal marker of financial progress; it also can be an indicator of broader economic health. But this money milestone is becoming increasingly inaccessible to many—and it’s not just because younger folks are strapped for cash.
In fact, today’s first-time homebuyers are faced with a number of obstacles, namely heightened down payment requirements. For the least-expensive 25% of the housing market, the median down payment in 2013 was $9,480, up from $6,037 in 2007, according to data collected by Redfin Corp. That’s 7.5% of the sale price in 2013, compared to 4.2% between 2001 and 2007.
Part of the problem is the fact that banks are wary of the risk that accompanies first-timers, fearful that they’ll have to buy back their own loans if the homeowners default. Requiring larger down payments is the banks’ way of balancing the risk of lending to people with lower credit scores.
Even government-backed mortgages don’t look as attractive to banks these days, Bloomberg reports. The Federal Housing Administration recently increased mortgage-insurance premiums, causing fewer first-time buyers to take advantage of their smaller down payments. Data from the National Association of Realtors shows that just 39% of first-time home-buyers took out FHA loans in 2013, down from 56% in 2010.
But young buyers‘ inability to purchase homes not only weakens the housing market—it also slows economic growth overall, says the National Association of Realtors. First-time buyers (typically a younger crowd) made up just 28% of total pre-owned home sales in June, significantly lower than the 40% historical average. The total number of mortgage originations fell to $286 billion in 2014, the lowest since 2000, the Federal Reserve Bank of New York reported.
The upside? Stricter lending may mean a healthier, more liquid housing market. And even though it’s more difficult (or, at least, more expensive) to secure an affordable mortgage and down payment nowadays, taking a mortgage “test run” and avoiding common mortgage-shopping mistakes can help bring that dream home within reach.