First-Time Home Buyer

A first-time home buyer is someone who purchases his or her first house, duplex, condominium, town-home, or manufactured home and moves into it. For generations, Americans have believed that to buy that first house means that one has achieved the American Dream of homeownership. Since the early years of the 20th century, politicians and lawmakers have encouraged people to buy a home by touting the benefits of homeownership to individuals, families, and communities. They often cite studies conducted by researchers that indicate homeowners are more likely to be involved citizens and that they volunteer for civic responsibilities more often. The children of homeowners achieve a higher level of education and have lower levels of emotional or behavioral problems. The conclusion of most studies is that home-ownership provides some stability in the family.

Federal housing policies and programs have been designed to help individuals and families become first-time home buyers. In 1934, Congress created the Federal Housing Administration (FHA) to stimulate homeownership and access to financing. FHA mortgage insurance reduced the level of risk for lenders so they were more willing to loan money, making housing more affordable to first-time home [Page 228]buyers. Since their inception they have helped more than 30 million people become homeowners. According to the U.S. Department of Housing and Urban Development, in 2000 more than 81% of the FHA-insured loans went to first-time home buyers.

To ensure that the FHA program reaches first-time home buyers, the definition of a first-time homebuyer has been clarified over the years. The current definition is used for all FHA mortgage products and is often used for other mortgage products and housing assistance programs that target first-time home buyers. The FHA definition for a first-time home buyer refers to an individual who meets any of the criteria below.

• An individual who has not owned, or been part owner, of a residence for the past 3 years
• A single parent who has not owned a home on his or her own but may have been an owner with a former spouse
• A displaced homemaker who has only owned a home with a spouse
• An individual who owned a manufactured home or other type of housing not affixed to a permanent foundation
• An individual who has owned a residence that is not in compliance with state or local building codes and that cannot be repaired to bring it into compliance

According to the U.S. Census Bureau, homeownership peaked at 69% in 2004 and then fell to 67% in 2010. The growth in homeownership was fueled by new mortgage products, lower down payments, low interest rates, availability of assistance programs, and creative mortgage programs that opened the door to homeownership for people who would not have qualified for a mortgage in previous years.

First-time home buyers account for an average of 39% of home buyers according to data from the National Association of Realtors and the American Housing Survey. Examining U.S. Census Bureau data indicates that more than one third (35%) of first-time buyers were minorities in 2003, as compared to only 19% in 1993. The group with the largest growth was the Hispanic population, reflecting a similar growth rate in relation to the general population. In addition to the increase in minority first-time home buyers, the percentage of homeowners under age 25 grew from 15.7% in 1990 to 25.7% in 2005.

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