March 14, 2016

Growing Sales to First-Time Homebuyers this Spring

Danny Gardner
Danny Gardner, SVP Client and Community Engagement, Single-Family

Millennials and other new households should be camping out at open houses, if history is any guide.

Mortgage rates are low, averaging four percent. Twice as many housing markets are growing or stable compared to this time last year. And, the nation's 86 million millennials, plus America's rapidly growing immigrant communities, are expected to produce about 1.2 million new households a year for the next ten years, according to statistics from the Harvard Joint Center for Housing Studies and the Collingwood Group.

Yet, first-time homebuyers made up 32 percent of last year's buyers of primary homes, says the National Association of Realtors. Compare that to the pre-crisis years when first-time homebuyers averaged 40 percent or more of the market.

What will it take to green up this year's spring homebuying season with first-time buyers?

Information is part of the answer. As an industry, we have to drive a stake through a few stubborn myths that are draining life out of the market. These familiar myths lead potential buyers to overestimate the credit, income and downpayment savings they need for an affordable mortgage.

Listening to a public radio call-in show, I recently had a first-hand demonstration of the stubbornness of the myth that buyers need a 20 percent down payment to qualify for a mortgage.

Callers didn't know our Home Possible Advantage's three percent down payment option is open to people who make over 100 percent of their area median income in high-cost markets. They didn't know there are no income limits if the home they want is in an underserved market or that they could finance a manufactured home if they opt for Home Possible's five percent down payment option.

Perhaps more importantly, they didn't know that gifts from relatives or grants could further reduce their out-of-pocket costs on both three percent and five percent down payment Home Possible Mortgages.

So one way to drive more sales this spring is to get myth-dispelling information into the hands of families who don't know how ready they are to buy their first home. We also need to get this same information to families who gave up trying after being rejected for a mortgage once.

For the real estate industry, Freddie Mac launched its online Real Estate Professionals Resource Center so agents and brokers can get the facts about down payments and affordable mortgages for their customers.

We are teaming up with non-profit organizations that work in the communities where potential buyers live. This is critical for reaching potential Hispanic and African-American buyers. The Hispanic community alone is expected to account for 40 percent of the next decade's new households.

We are also getting out the word to spring homebuyers through a special blog series about finding, bidding, buying and closing on your first home. Watch for it on the Freddie Mac Blog.

Buyers should also check out My Home by Freddie Mac, our one-stop-shop where consumers can walk through the homebuying process, learn from housing professionals, and find other resources for making informed decisions. Also, Freddie Mac Borrower Help Centers and Borrower Help Network deliver free housing counseling services across the country.

Finally, the 20% down payment myth isn't the only one out there. We've created this handy flash card to remind you what some of these myths are and help you dispel the myths too. Pull it out when you hear one of the common homebuying myths so you can give out the facts.



"A 20% down payment is required"You can get a mortgage loan with a down payment of ≥3%; average ~15%; 40% of buyers put down ≤10%
"FHA is the place for low-down payment mortgage loans"Freddie Mac has a range of low-down payment products to meet your needs
"I have to use my savings for a down payment"You may be eligible for down payment assistance; gifts & grants are OK, too
"My credit history isn't good enough and/or I don't earn enough"The lender ultimately decides a borrower's eligibility, but Freddie Mac considers numerous factors to make affordable mortgages available to people with a wide range of credit and income
"I don't know where to start – the buying process is complicated"Not-for-profit, HUD-approved housing counselors help for free; Freddie Mac offers free CreditSmart® financial education
"I can't buy because I was rejected once"Find out why – fix issues if you can, try again & you might be approved this time