Time Home Buyers Bloomberg

First-time homebuyers are eventually jumping into the U.S. property marketplace.

Want evidence? Look at the mortgage marketplace’s quickest-growing section: loans with low down payments

Originations of FHA-backed mortgages, used by first-time buyers, were up 54 percent from a year before in September, based on the latest data from CoreLogic Inc. By December, the FHA guaranteed 22 percent of all loan originations, up from 17 percent a year before, based on data compiled by Ellie Mae Inc.

“The FHA will be a contributing factor to homeownership growing again in America,” said David Lykken, president and creator of Transformational Mortgage Solutions in Austin, Texas. “We’re seeing the yield of first-time buyers.”

President Barack Obama’s government, in January 2015, reduced mortgage-insurance premiums for FHA loans. That lowered the price of getting a home loan and brought in at least 75,000 new borrowers with credit scores of less than 680, according to a November report from the U.S. Department of Housing and Urban Development.

After the insurance premium was cut, according to CoreLogic the speed of FHA financing, which had been in decline through most of 2014, tripled.

The FHA estimates that borrowers save $900 a year on average as an effect of the premium that is lower. The move made FHA-backed mortgages competitive with other loans that have low-down payment alternatives, said publisher of the newsletter Inside Mortgage Finance, Guy Cecala. While mortgage giants Fannie Mae and Freddie Mac have an alternative for borrowers to put down as little as 3 percent, private insurance is required by them with risk-adjusted premiums based on credit scores, debt-to-income ratios and other variables.

“It still costs more to get a 3 percent-down loan with Fannie and Freddie if you’ve got a lower FICO score,” Cecala said.

The homeownership rate in the third quarter was 63.7 percent, up from 63.4 percent in the preceding three months and the first quarterly rise in two years, according to the U.S. Census Bureau, which is scheduled to release fourth quarter data next week.

“Last year’s selection to lower premiums was designed to open the door to those formerly priced out of homeownership,” HUD Secretary Julian Castro said in an e-mail. “We have found positive outcomes with new buyers entering the marketplace and making the American dream of homeownership a reality.”

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