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It’s hard to be a first-time buyer when home prices and mortgage rates are elevated. Read on for ways you can overcome those challenges.
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Even though mortgages weren’t as expensive to sign in 2022 as they were in 2023, 2022 was still a tough year for home buyers. That year, inflation was truly soaring, making it harder for buyers to save more for their down payments.
Also, inventory was sorely lacking. And because mortgage rates remained fairly competitive at least during the first part of the year, bidding wars were still pretty prevalent, as buyers wanted to snag those great rates while they were still available.
It’s therefore not so surprising to learn that only 26% of home purchases in 2022 were made by first-time buyers, according to a report by the National Association of Realtors. In 2022, the percentage of home buyers who were first-timers reached its lowest share since 1981. For context, historically, in a given year, the average percentage of home purchases made by first-time buyers is 38%.
The housing market has cooled off a bit since 2022. But it’s still tough for first-time buyers to break in. After all, they don’t have the same leeway as existing homeowners who may have a lot of equity in their homes they can tap. But there are steps you can take as a first-time buyer to give yourself an edge.
1. Get pre-approved for a mortgage
When you conduct a home search with a pre-approval letter in hand, it tells sellers that a mortgage lender has already vetted your finances and determined that you’re in a reasonably strong position to purchase a home. That’s something sellers want to see.
Let’s say a seller accepts a buyer’s offer, only that buyer then is unable to secure a mortgage. That puts the seller back at square one, and at a disadvantage, because the longer a given home sits on the market, the more negotiating power buyers get. But if you go in with mortgage pre-approval, a seller may be eager to accept an offer you make.
2. Be flexible with your closing date
If you’re a first-time buyer, it means you’re not trying to buy a home and sell one at the same time. As such, you may have more flexibility as to when you move into your new home. And if you’re able to work around your seller’s preferred timeline, it might give you an edge.
Let’s say you’re looking at homes this month and find one that meets your needs, only the seller doesn’t want to close until June because they want their children to finish up the school year. If you’re currently in a month-to-month rental, you might be able to make that work. And if so, you might get your offer accepted.
3. Make a competitive offer from the start
With mortgage rates being where they are today, many buyers are not coming in and offering $50,000 over the asking price the way they did back in 2021 and even 2022. But because inventory is limited, bidding wars are still an issue.
To avoid that, try to make a strong offer from the start. If you see a great home listed for $399,999 and you can afford to pay $10,000 more, you may want to just offer that initially.
If you do, a seller might accept that price on the spot rather than wait and see if better offers come in for them to entertain. And if you can avoid a bidding war, you might end up with a lower price even after going after the listing price.
Buying a home can definitely be a challenge if you’re doing it for the first time. But these tactics could help give you an edge in a stubbornly tough market.
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