First-time homebuyers are facing the toughest market in a generation, however there finally may be a solution to some of the challenges being experienced.
The average age of the first-time buyer is now 36, up from 33 in 2021. Mortgage rates are at a 20 year high. Only 26% of homes are bought by first-time buyers, the lowest percentage in over 40 years. Yet, over 18 million millennials and Gen Zers are looking to buy their first home over the next 10 years.
Fractional ownership, a new approach to buying a home, might be able to help. In a fractional ownership program, a buyer partners with an investment partner to build equity in their home over time, while living in it. Contrary to a mortgage, there is no debt involved, and the buyer has the flexibility to build as much or as little equity in the home as they choose. For more on how fractional ownership works, read our blog post.
How can fractional ownership help first-time homebuyers?
- Fractional ownership reduces the requirement for a large down payment. Contrary to a 10-20% down payment for a mortgage-financed home purchase, a participant in a fractional ownership program can get started with as little as 2% down payment. This enables first-time homebuyers to buy their starter home much earlier in their life and extends the amount of time they're able to benefit from home-price appreciation.
- Fractional ownership reduces the investment risk in the home purchase compared to a mortgage-financed purchase. In a traditional mortgage-financed transaction, the borrower takes on 100% of the risk of home price changes. If home prices appreciate, that can be a sound investment; however, if home prices depreciate, the borrower carries all the down-side risk. As we saw during the 2008-2009 housing crisis, many borrowers found themselves owing more in mortgage debt on their homes than their homes were worth ("being underwater"). With a fractional ownership program, the investment risk is shared equally among the homebuyer and the co-investors and fractional ownership provider. The result is the homebuyer gives up some of the upside in return for the safety of a reduced downside when home price fall. We call it "Evergreen Equity".
- A fractional ownership program reduces the risk of unforeseen repair and maintenance expenses for the first-time homebuyer. In a fractional ownership program, the program provider pays homeownership expenses such as insurance, taxes, and repairs. This protects the first-time buyer from the unforeseen costs of major repairs such as roof replacement, water heater replacement, major home systems failing, etc. Especially for first-time buyers who may have stretched their budgets, this certainty provides peace of mind.
- A fractional ownership program can result in lower ownership costs compared to a mortgage. First-time homebuyers often feel "house-poor". One of the reasons is that the total cost of ownership with a mortgage-financed purchase includes not only the principal & interest payment to the mortgage lender, but also the Private Mortgage Insurance (PMI) usually required, property taxes, homeowner's insurance, and maintenance and repair costs. A fractional ownership program provides for a fixed monthly payment through the duration of the program (usually five years) to cover all expenses. Given current mortgage rates, the monthly payment for a fractional ownership program can be lower than the comparable mortgage payment. For a comparative breakdown of equity-sharing vs mortgage payments for different home purchase amounts, please visit Ownify Comparison.
- A fractional ownership program makes your offer competitive. In a competitive market, sellers have the choice between different offers and will often prefer a cash offer to an offer with a financing contingency. Working with a fractional ownership provider like Ownify allows first-time buyers to put a competitive all-cash offer on the table, ensuring a higher win-rate.
Are you a first-time homebuyer interested in learning more about how fractional ownership works? Learn more about building equity with Ownify.
If you're ready to get pre-qualified then apply now here. If you would like a quick check on your eligibility for Ownify, use our tool here.
For real estate agents interested in how our fractional ownership program can help your first-time homebuyers achieve their dreams of homeownership, register to become an accredited agent and learn more about our fractional ownership solution.
For investors interested in supporting first-time homebuyers, you can get started investing here by submitting your information and scheduling a meeting with a member of our team.