For a first-home buyer, getting the project off the ground is a massive mountain to climb. The housing scenario has not much to cheer about currently. Mortgage rates are at an all-time high and for many specific types of properties, especially starter homes, the inventory remains quite tight.
All this means one thing and that is housing affordability is at an all-time low. Even condos on low-priced scales are hard to come by for first-time home buyers as sellers prefer all-cash bids to close deals quickly.
Data from the National Association of Realtors make for some interesting reading. First-home buyers constituted only 26% of total home sales, a fall of 34% year-on-year. This shows how badly hit is first-time buyer eligibility. This section has to therefore either get creative with funding or carry on in a rented accommodation longer than planned.
If you too fall in this category and struggling to acquire your first home, here are some strategies to implement to meet your goal.
![You MUST Know This When Buying A House In Colorado For The First Time [MONEY SAVING TIPS]](https://i.ytimg.com/vi/WSC2dmDuz-A/maxresdefault.jpg)
1. Try House Hacking
“House hacking” is an excellent real estate strategy to help in buying your first home. It is centered around generating income from your home so that you get some relief in making mortgage payments.
There are many plans that you can try out and there is no limit to how creative you can get with house hacking. For example, rent out a basement apartment or accessory dwelling unit (ADU) such as a detached garage that has been outfitted with a bathroom and small kitchen. Or you can convert a part of your home into an Airbnb or split living expenses with a housemate.
Even though house hacking is not new, it has lately become very popular along with the rise in real estate digital platforms. These are specially tuned to connect homeowners and those looking for similar services. It has therefore made it easy to reach out to people to generate more income from a house.
Given below are a few instances where you can make your house work for you and generate some extra cash.
- Offer paid parking in your driveway on a site like Spacer or SpotHero.
- Rent out your swimming pool for a few hours on Swimply.
- Make your home available for photoshoots or events on Giggster or Peerspace.
- Turn your backyard into a pay-by-the-hour dog park on Sniffspot.
- List your garage space on an app like Neighbor Storage.
Through house hacking, you can afford your first home by acquiring the first-time buyer eligibility necessary for obtaining a mortgage loan. If you buy a home with immediate earning potential you might get approval for a larger mortgage. These include houses with a secondary suite with a kitchen and a full washroom or a legal duplex.
The reason why lenders are more liberal if you have house hacking potential is that the risk of receiving timely mortgage payments is reduced greatly.
However, you just cannot resort to house hacking just off the cuff. You must strictly follow the location’s laws and HOA rules’ At Just Livin Realty, we can help you find a home with income potential in a neighborhood with less restrictive zoning and regulations.
2. Team Up With Friends or Family
If you aren’t wild about the idea of welcoming strangers to your home, you may want to 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.3 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.5
Arrangements can be customized to fit your circumstances. For example, you could purchase a home and then rent a portion of it to a loved one. Or you might consider co-buying a home with friends or family members so that you can step onto the property ladder and start building equity together.
Co-ownership could work out especially well for you 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. Plus, you’ll get to see your loved ones more often and enjoy the coziness of shared living with people you like having around.
On the other hand, sharing a big financial responsibility, like a mortgage, with friends or family could get messy—especially if you don’t create a clear-cut co-ownership agreement beforehand that outlines your mutual expectations. So plan carefully before you proceed.
In addition, you may need to rethink the type of home you pursue. For example, a smaller home might be cheaper, but do you really want that much togetherness all the time? We can help you set priorities and search for a suitable property.
3. Tap Your Network for Help With Funding
A common path to buying your first home is to lean on friends or family for financial support. This becomes very important when you are putting together the down payment. A 20% down can be a substantial amount. The first-time home buyer’s down payment is what typically stops people from acquiring their first home. Even assistance with closing costs can go a long way to making the dreams of homeownership come true.
Apart from an all-cash help, you can also ask your loved ones to co-sign the loan. The benefit here is that if they have a high credit score the first-time buyer mortgage rates will be low. You will get the advantage of a lower mortgage amount during the entire tenure of the home loan.
According to a recent YouGov poll, more than a third of homeowners (and a whopping 79% of those under 30) received financial help from their parents when buying their first home.6 Hence, do not worry, you are not alone in seeking help to achieve housing stability.
A very important point here is that the financial help that you take should be in the form of a gift and not a loan and that your generous loved ones should be willing to put that in writing. This is because while calculating the debt-to-income ratio by lenders to check on your first-time buyer eligibility, the help amount should not go into the total debt owed by you. It will skew the DTI ratio against you.
You can also tap into your network to crowdfund the first-time home buyer’s down payment. Or 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. The more creative you get, the faster will you become a first-home buyer.
4. Look for Special Programs and Assistance
You could also cut some of your upfront mortgage costs by applying for special grants and funding opportunities.
For example, consider using a grant to help fund your first time home buyer down payment. There are a number of public and private grants and down payment assistance programs that are expressly intended to help first-time buyers.
Just like a gift, you don’t have to pay a grant back and it will help buying a first home. 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 with low first time buyer mortgage rates.
Check out grant programs, such as the HomePath Ready Buyer Program, National Homebuyers Fund, the Good Neighbor Next Door Program, and specialized grants from banks. Also look to state and local sources for potential grants and down payment assistance programs, including forgivable and deferred payment loans, Individual Development Accounts, and DPA Second Mortgages.7
Similarly, if you have enough income to support a house payment but can’t spare much cash for your down payment, you may qualify for a government-sponsored loan, such as an FHA loan that allows you to put down as little as 3.5% to 10%.8
We can connect you with a lender or mortgage broker who can educate you about your options and help shepherd you through the process. Some financial assistance programs require you to work with specific lenders, while others require you to apply directly and fill out a separate application.
In addition, you may look to even less conventional options, such as seller financing. But be aware these kinds of arrangements are rare and hard to find. Depending on the market, you will likely get more help from a seller if you ask them to pay closing costs or contribute to your mortgage rate buydown. In many cases, we can help you negotiate seller concessions that make your home purchase more affordable.
5. Expand Your Home Search
If you’re having trouble finding a home within your budget, consider broadening your search criteria. You may be surprised by the kinds of deals that are available when you’re willing to compromise.
For 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 that are 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.
You could also save money on your home purchase simply by dropping or revising some of your must-haves and settling for OK-to-haves instead.
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, cozy balcony, or rooftop terrace still give you the outdoor time you crave? These types of compromises can sometimes shave tens of thousands off your purchase price.
Similarly, if you don’t mind rolling up your sleeves or working with a contractor on minor jobs, 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. You can then take your time to save more and fix it up to your taste.
Keep in mind, starter homes are rarely forever homes, but merely a first step onto the property ladder. By gaining a foothold in the real estate market now, you can set yourself up to afford a more expensive property in the future.
According to the National Association of Realtors, in 2021, the net worth of a typical homeowner was $300,000, while that of a renter was only $8,000.9 We can help you find an affordable first home so you can start building equity to reach your long-term financial and real estate goals.
YOU CAN DO IT—AND WE CAN HELP
Buying a first home is challenging, but it’s not impossible—especially when you have a savvy real estate professional in your corner. We will work with you to devise a plan to overcome your financial constraints. Then, we’ll help you find a home that not only excites you but also fits your budget and lifestyle. Give us a call to get started with a free exploratory consultation.
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:
- Housing Wire –
https://www.housingwire.com/articles/housing-affordability-ends-2022-at-record-low/ - Realtor.com – https://www.realtor.com/news/trends/death-of-the-starter-home-where-have-all-the-small-houses-gone/
- National Association of Realtors – https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
- ValuePenguin –
https://www.valuepenguin.com/mortgages/claiming-rental-income-for-mortgage - 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/
- YouGov – https://today.yougov.com/topics/economy/articles-reports/2022/05/25/american-homebuyers-finanancial-help-parents
- Bankrate –
https://www.bankrate.com/mortgages/first-time-homebuyer-grants/#types - Investopedia –
https://www.investopedia.com/terms/f/fhaloan.asp - 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