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Business & Tech

Home Market Narrows for First-Time Homebuyers

Still, many cities including Fountain Valley have programs that help first-timers with a low down payment and long-term financing.

Stricter credit and lending requirements, higher down payments and competition with cash-holding investors have restricted the market for first-time homebuyers, even though prices are down, plenty of foreclosures are available and interest rates are still low.

It is a frustrating situation for first-time buyers, whose numbers have declined substantially. The number of first-time buyers fell to 29 percent of the market in January. In 2009, the percentage of first-time buyers peaked at 47 percent of the market, probably because of the federal tax credit and historic affordability.

The average first-time buyer is 30 years old and prefers homes in the suburbs.

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While first-time purchases declined, all-cash deals have jumped to 32 percent of all home sales. That’s double the rate from two years ago. Investors are attracted to home prices that, according to the National Association of Realtors, are the lowest in nine years.

Some first-time buyers have decided that the best route is to save more money for a larger down payment. Not a bad thought, but saving for a large down payment in the current economy and poor job market is not an easy task. It also slows down the pace of first-time purchases and reduces overall monthly sales.

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Another alternative is to take advantage of first-mortgage programs provided through cities, states and government-backed programs. FHA loans remain available, although the program is threatened by efforts to reduce the national deficit and reduce the risk of huge losses when buyers default on their FHA loans.

The City of Fountain Valley offers first-time homebuyers down payment assistance. Eligible buyers or households can receive as much as $50,000 for a one-bedroom home, $100,000 for a two-bedroom home or $150,000 for a home with three or more bedrooms.

Under the plan a first-time buyer can obtain a 45-year loan with interest and payments deferred for the first 10 years of the loan. The loan is secured by a second trust deed in conjunction with a first mortgage offered by a participating lender.

To apply for the loan, applicants must complete a pre-qualification checklist and return it to the City of Fountain Valley. The applicant must also meet with a real estate agent to locate a single-family home, townhome or condominium within the city. Garden Grove also has a first-time homebuyer program.

The state also has options. The California Housing Finance Agency provides a below market-rate mortgage plan for first-time buyers. The CalHFA FHA 30-year fixed mortgage provides up to 96.5 percent financing with a low, fixed interest rate that never changes during the life of the loan. The loan can be up to $417,000 and it must be for a primary single-family residence, and the mortgage plan can be combined with CalHFA’s down payment assistance programs for added benefit.

On the federal level, FHA loans are still available and can provide the boost that first-time buyers need. The FHA program features low down payments, low closing costs and easy credit qualifying for one- to four-bedroom units.

In Fountain Valley, the median prices of three- to four-bedroom homes range from $394,450 to $769,000. That’s according to the quartiles, which divide homes into four categories, the most expensive 25 percent of homes, the upper- middle 25 percent of homes, the lower-middle 25 percent of homes and the least expensive 25 percent  of homes.

For instance, square footage on the least expensive quartile home spans 1,571-square feet on a lot that's less than 4,500 square feet. For the most expensive quartile home, the square footage is 2,501 square feet with a lot size of 6,501 square feet to 8,000 square feet.

With FHA loans, the down payment can be a low as 3.5 percent of the purchase price and most of the closing costs and fees can be included in the loan. Also, FHA has a loan that allows the buyer to buy a fixer-upper home, repair it, and include the repair costs in one loan. Not a bad way to go, especially if the buyer enjoys home repairs.

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