Federal loans account for two-fifths of first-time home purchases

(The Center Square) – A new National Association of Realtors report says federal government-backed financing was used in two out of every five first-time home purchases over the past year.

The Federal Housing Administration said it insured $1.65 trillion in mortgages as of Sept. 30, up from $1.29 trillion six years earlier. Its latest annual report to Congress also said 83% of the purchase loans it supported last fiscal year went to first-time buyers.

For repeat buyers, the Realtors reported a median household income of $127,000, compared with $111,700 a year earlier. About 30% paid cash for their homes. Of those who borrowed, 72% used a conventional mortgage.

FHA reported that its insurance fund held $188.9 billion in capital at the end of September, giving it a capital ratio of 11.47% against the 2% minimum required by Congress. Under the report’s most severe stress test, that ratio would fall to 4.42%.

That means the agency has about 11 cents in capital for every dollar it insures, well above the 2-cent threshold set by law. Even under a downturn as severe as the Great Recession, FHA’s modeling indicates the fund would still keep more than 4 cents on the dollar.

Still, the agency’s own report points to a weakness beneath that buffer. FHA said its efforts to keep troubled borrowers in their homes are “currently approaching a 60% redefault rate, which is unsustainable and a detriment to the MMI Fund,” and added that when borrowers cannot recover, it “must protect taxpayer dollars.”

In practical terms, the report says six in 10 borrowers who receive a payment break or loan modification fall behind again within a year, using a measure that tracks redefaults within one year of a loss-mitigation action.

Jessica Lautz, NAR’s deputy chief economist, said sellers have little incentive to delay when a federally backed buyer is competing with cash.

“If you have an all-cash offer as a home seller, you're likely going to take that one just because you're not going to have any delay in closing time,” she told The Center Square.

That was not always true. During the housing crash, foreclosures flooded the market and 55% of first-time buyers used FHA loans in 2009, according to the Realtors’ report. Lautz said inventory was abundant, a federal tax credit was attracting buyers, homes stayed on the market longer, and offers backed by FHA, VA or USDA loans were often accepted without difficulty.

FHA is also facing higher-than-expected foreclosure losses. Its net loss rate on claims was 34.19% through the first half of fiscal 2026, compared with a forecast of 24.41%, according to its quarterly report to Congress. The agency said the gap reflects home-price appreciation that “has slowed and reversed in some parts of the country.”

The agency had expected to lose about a quarter of what it paid out so far in the fiscal year. Instead, it is losing about a third.

The median age of the first-time buyer in this year’s Realtors survey was 40, but Lautz said that figure blends two different groups. She said the median age of cash first-time buyers is 54, while the median age for those using a mortgage is 38.

A separate study found a younger profile. Research from the American Enterprise Institute’s Housing Center, which analyzes credit records rather than survey responses, put the median age of first-time mortgage borrowers at 33 in the second quarter of 2026, unchanged from a year earlier.

HUD did not provide an on-the-record response. The VA said it helped more than 330,000 borrowers avoid foreclosure or remain in their homes over the past two fiscal years. A USDA spokesperson said fiscal 2026 figures for Rural Development’s single-family lending will not be released until the president’s 2028 budget request in February.