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Threats to First-Time Home Buyers’ Path to Ownership

Higher home prices are translating into higher down payments. The median home price is $350,000, according to the National Association of REALTORS®. That means a buyer would have to put down $70,000 (or 20%) on a purchase to avoid private mortgage insurance.

Low down payment loans are available for those who can’t reach that 20% down payment threshold. For example, FHA loans require 3.5% down, which would be $12,500 on a median-priced home.

“Higher home prices mean higher down payments, and first-time buyers may suddenly realize it is a challenge unless they can tap into financial help from family members,” says Lawrence Yun, NAR’s chief economist.

Also, lenders are requiring higher credit scores as default risks for existing homeowners mount amid the pandemic. The median FICO score for mortgages to buy a home is around 700, according to the Urban Institute’s July 2020 data. The pricier the market, the higher the FICO score often required. For example, the mean FICO for borrowers in San Francisco is 777.

Borrowers who don’t have a high credit score may find more luck with nonbank lenders (such as Quicken or LoanDepot), Forbes.com reports. The median credit score required for such a lender is 755, which is 15 points lower than the bank median of 770.

For consumers now working remotely and no longer tied to commutes, they may be drawn to moving away from urban centers in search of greater affordability.

“Rural areas have mortgages (USDA loans) that don’t require down payments; and some workers who can work from home may want to consider outer suburbs or small towns where USDA home loans are available and where homes are very affordable,” Yun told Forbes.com.