Can You Own A Home On A First-Time Buyer Budget?

Unless you’ve been living under a rock…you have probably caught wind that housing affordability in America hit an all-time low recently.  The combination of higher mortgage rates and low inventory have made the sta

rter home category particularly tough, as lower-priced homes quite often get snagged with cash buyers.  It can be deflating for the first-time buyer, to say the least!  

That relationship, that trust…it’s especially important on any purchase, but there’s just something special about the first purchase. So, here’s the core-rocking stat: according to the National Association of Realtors, only 26% of last year's homebuyers were first-timers—the lowest share on record and down from 34% a year prior¹. Wow.

As a result, many first-time homebuyers are finding that they need to get creative or risk renting for longer than they planned. Have no fear, “creative” is my middle name (technically it’s Lynne, but you know what I mean). 😉 Here are some creative ways to become a homeowner on a first-time buyer budget:

1. Team Up With Family or Friends

If you aren't able to qualify for a home on your own, consider co-purchasing with a friend or family member instead. This unconventional housing arrangement is also growing more popular as friends and family members cope with higher living costs by pooling resources.

According to the National Association of Realtors' 2022 Profile of Home Buyers and Sellers, the share of first-time homebuyers living with people other than children or a romantic partner is currently at an all-time high. Meanwhile, research from Pew found that multigenerational living has accelerated especially quickly, with a quarter of U.S. adults aged 25 to 34 now living in a multigenerational home.²

Arrangements can be customized to fit your circumstances. For example, you could purchase a home together and share the expenses, or even purchase yourself and then rent a portion of it to a loved one. You'll get to see your loved ones more often and enjoy the coziness of shared living with people you like having around.

If that doesn’t spark your interest, or maybe your goal was to live on your own…there are loan products that allow a non-occupying co-borrower for you; meaning, you live there alone, but that family member or friend is on the mortgage with you.  This will provide you both the opportunity to start building equity together as their financial file can aid in your approval. If you (or your family/friends) wanna know more about those loan options, reach out & we'll get you set up with our Favorite Lender. 

Co-ownership could work out especially well in the long-term if it helps you to buy a home that's bigger, has more investment potential, or is located in a high-demand area and so appreciates at a faster rate. It’s a win-win!

2. The Gift that Keeps on Giving

Getting assistance with the down payment or other borrowing costs can go a long way toward making your homeownership dreams come true.

As long as you don't mind asking for help, a free-and-clear gift that's intended for your down payment is an ideal arrangement, since it will allow you to borrow less overall. Or, if that’s too big an ask, your loved ones could pitch in toward closing costs.

Unlike the scenario above, with gift funds, your loved ones do not need to co-sign your loan. This is a pretty common solution for many first-time buyers.  According to a recent YouGov poll, 79% of first-time buyers under the age of 30 and a third of first-time buyers in general received financial help from their parents when buying their first home.³ So you wouldn't be the only one leaning on family to help afford a home at today's prices.

Just be sure your parents or other generous loved ones are aware they're giving a gift, not a loan, and are willing to put that in writing. A lender will want proof that this money isn't adding to your debt burden and may require documentation from your benefactors.

Another way to tap your network for help is ask for monetary gifts instead of tangible ones. For example, if you're getting married soon, you could skip the wedding gift registry and ask guests to contribute funds to your hoped-for home purchase instead. I’ve personally closed quite a few newlyweds through the years who have done just that!

3. Look into Down Payment Assistance and other Programs

There are also quite a few special grants and funding opportunities for first-time buyers.  But, depending on your personal situation, you may find some grants difficult to qualify for—especially if you make a relatively high income. Many grants are reserved for lower-income buyers only.⁴

When you apply for a mortgage with our Favorite Lender, they simultaneously pre-qualify you for any down payment assistance options too.  Just like a mortgage, DPA has guidelines, so your overall financial profile is taken into consideration and your credit score,  debt-to-income ratio, work history, and assets are also reviewed for those programs.  Often times, the programs not only require you to meet their guidelines, but you also have to attend a first-time buyer class. That’s a fair price to pay for cold, hard cash for your down payment and other closing costs, don’t you think?

Again, you’re always welcome to contact us directly and we can connect you with our Favorite Lender or we will happily work hand-in-hand with yours.  Together, we can shepherd you throughout the process and make your first-time purchase fun and stress-free! Call or text us at 855.4YO.MAMA.

4. Expand Your Criteria

If you’re having trouble finding a home within your budget, I urge you to consider broadening your search criteria. Reminder, this is your FIRST house, and more than likely won’t be your last.  But, what it WILL be is a great stepping stone for you, building equity that you can use for future purchases.  And, honestly, you may be surprised by the kinds of deals that are available when you're willing to compromise. And, let’s face it, if you’re renting or living with family right now, I bet you’ve gotten pretty good at compromising.

The first thing I recommend to any buyer whether it’s your first home or your tenth home is defining your “Must Haves” and separating them from your “Would Be Nice Ifs.” For example, do you really need two bathrooms and a large backyard? Or could you settle for a single bathroom with space to add a second one in the future? And would a small garden or cozy balcony still give you the outdoor time you crave? These types of compromises can sometimes shave tens of thousands off your purchase price.

As another example, if you're struggling to find an affordable home in your target neighborhood, expand your search area and consider homes that are further out of town or located in up-and-coming areas with lower starting prices. We would be happy to introduce you to some great but lesser-known neighborhoods that we consider hidden gems.

Similarly, you can look for homes that need a little TLC. Just because a house looks dated doesn't mean it's destined to stay that way or that it will take a ton of money to spruce up. In fact, a home with good bones but cosmetic flaws could be a perfect match: with less competition, you'll have a better chance of purchasing the home at an affordable price AND maybe the seller might be inclined to provide us with some concessions to cover repairs…you never know until you try. 😉

I’ll leave you with one last stat that hopefully helps “move” you (pun intended): according to the National Association of Realtors, the net worth of a typical homeowner was $300,000, while that of a renter was only $8,000.⁵ YES! That net worth should be YOURS! It’s time to start building equity to reach your financial goals.  We can help you find an affordable first home, whether it takes you three weeks, three months, or three years…if your goal is homeownership, our goal is to get you there! 

Over the past 20 years, we’ve helped literally thousands of consumers devise real estate game plans that turn those real estate dreams into reality.  Let’s connect and get started on that path together.   Buying a first home is challenging, but it's not impossible—especially when you have a savvy and caring real estate professional in your corner for life. So let’s connect and let my TEAM WORK for YOU.

Much love, 

Amanda aka The Marketing Mama

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

 Sources:

1. National Association of Realtors - https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
2. Pew - https://www.pewresearch.org/fact-tank/2022/07/20/young-adults-in-u-s-are-much-more-likely-than-50-years-ago-to-be-living-in-a-multigenerational-household/
3. YouGov - https://today.yougov.com/topics/economy/articles-reports/2022/05/25/american-homebuyers-finanancial-help-parents
4. Bankrate -
   https://www.bankrate.com/mortgages/first-time-homebuyer-grants/#types
5. National Association of Realtors - https://www.nar.realtor/sites/default/files/documents/2022-snapshot-of-race-and-home-buying-in-the-us-04-26-2022.pdf