Strategies available for first-time buyers

Higher mortgage rates and limited housing inventory are challenges for many potential homebuyers, and can be particularly daunting for those entering the market who lack home equity and purchasing experience. But real estate experts say they can use a variety of strategies to get their first house.

“I actually never thought that I would be able to afford to buy a house,” said Rebecca Parr, 39, who used funds from an inheritance for a down payment to buy her Alexandria townhouse in January.

She was helped by Coral Gundlach, a Northern Virginia real estate agent and vice president at Compass, who assisted with such details as finding a home inspector. “I don’t think I could’ve done it without her.” Parr said. “She knew my questions before I could even think of them.”

First-time buyers don’t always know what to look for on real estate websites, Gundlach said. There are many things to consider, from different fees associated with buying to how close the property is to power lines and traffic, she said. That’s why Parr and Gundlach reviewed listings together.

Parr was initially interested in a “low-priced condo with an exorbitant monthly fee,” Gundlach said. But after they examined the fee and talked with Parr’s lender, Parr realized she didn’t want those expensive condo amenities and “could actually afford way more in a townhouse that didn’t have those fees,” Gundlach said. It opened up her search, Gundlach said, and allowed her to find the townhouse she now calls home.

“Especially for first-time buyers, all the information on the internet makes people think they don’t need an agent sometimes,” Gundlach said. “But we’re not just information providers. We provide guidance and expertise and perspective that first-time home buyers especially might not have.”

First-time home buyers fell to an all-time low of 26 percent of all buyers in 2022, down from 34 percent in 2021, according to the National Association of Realtors (NAR) 2022 Profile of Home Buyers and Sellers. The median age of first-time buyers jumped from 33 in 2021 to 36 in 2022, NAR data showed.

“Today, first-time home buyers are closer to 40 than they are to 30,” given they often must save for a longer period of time and “perhaps really prioritize what they need versus what they can sacrifice,” said Jessica Lautz, deputy chief economist and vice president of research at NAR. Over a quarter of first-time home buyers in NAR’s 2022 report said saving for a down payment – typically 6 percent for first-time buyers in 2022 – was the most difficult step.

Another obstacle is student debt. “Even with the pause in payments of student loan debt, for many young adults, they still have a debt-to-income ratio that is going to trail them,” Lautz said.

Despite these challenges, NAR’s Realtors Confidence Index survey for January found the share of first-time buyers to be 31 percent, an indicator of the success they can have in winter months when there’s typically less competition and more negotiation power for buyers. NAR’s RCI survey is based on responses from thousands of real estate agents around their client interactions and sales.

“What we’re seeing right now is for first-time home buyers who were successful in entering the buying market in the last year, they had family support,” Lautz said. One way first-time buyers are preparing is by staying at – or returning to – their family’s house to save, rather than living in a rental. NAR data shows that 27 percent of first-time buyers in 2022 moved from a family or friend’s house when they purchased their first home.

NAR’s 2022 survey also found that 22 percent of first-time buyers received a gift or loan from a family member or friend for their down payment. “They are providing them that cash transfer of wealth to allow them to enter into homeownership, which without they may not have been able to do so,” Lautz said.

Lautz offered other advice: think about paying down — or off — your student loan, put your tax refunds toward debt or savings, and use real estate experts. “Use your realtors who will tell you about overlooked neighborhoods or areas to search for a home,” Lautz said. “Use mortgage brokers who can tell you about low down payment programs like an FHA [Federal Housing Administration] loan, where you just need 3.5 percent down.”

First-time buyers should also be flexible with their wants versus their needs, said Long & Foster agent Yolanda Muckle, 2023 president of Maryland Realtors. “Sometimes people want more than they can afford at that particular time,” Muckle said, so she helps first-time buyers understand what properties are within their budget.

There are numerous loan programs available for first-time buyers, said Eric Mullis, senior loan officer at CMG Home Loans. Some include Federal Home Loan Bank grants and state home-buying programs, like DC Open Doors, Maryland Mortgage Program and Virginia’s Homeownership Down Payment Assistance Program.

“If somebody’s serious about buying a house, I tell them, ‘Where there’s a will, there’s a way,’” Mullis said. “When rates go up, the mortgage industry pivots to find ways to make getting a mortgage more attractive and affordable in the ways that they can.”

Mullis helps clients navigate the complexity of financing their first home, sometimes a year in advance of buying, to “set them up for success,” he said. Conversations range from the importance of a good credit score to loan programs that best fit for the client, he said.

“It doesn’t hurt to ask and educate yourself,” Mullis said. First-time buyers can explore different lenders to find the best loan program. Some lenders – like Mullis’s – now allow buyers to refinance with them at no cost if the rates fall at least half a percent.

“There’s a lot of ways for people to get in [the market],” Mullis said. But that doesn’t mean all first-time buyers will get what they want. Even if the property is not ideal, there are still advantages to buying a house, such as avoiding rent increases, securing tax benefits and building wealth.

Simply put: Buy now, and refinance later if needed, said Long & Foster agent June Steinweg, president of the Anne Arundel County Association of Realtors. “You’re never going to go wrong. It’s an investment. You get a tax write-off. You know you’re paying yourself.”