Methods being taken by the Federal Reserve to address inflation are influencing changes in the real estate market in the United States as prices stabilize in some areas and properties remain on the market for longer periods.  While a more balanced market often levels the field of opportunities for first-time home buyers, many are unaware of the advantages that such a market often affords them that could help them finally acquire the homes of their dreams.   Unfortunately, that lack of knowledge or worry over higher interest rates often translates to missed opportunities.

The Top Five Things that First-Time Home Buyers Should Know

Active listings of homes for sale are remaining on the market longer as investment buyers pull back and interest rates rise.  As the real estate market shifts away from the recent one that dramatically favored sellers, consider these top five things that are certain to help first-time home buyers take advantage of the opportunities that a more balanced real estate market makes available to them.  

How Real Estate Agents Identify a First-Time Home Buyer

According to The U.S. Department of Housing and Urban Development (HUD), one description of a first-time home buyer is as an individual who has not had ownership in a primary residence during the three-year period ending on the date of purchase.  It is important to know, however, that the loan programs available to first-time home buyers typically require that they not have been on title to ANY residential property during the three-year period ending on the date of purchase, that they meet certain income and credit parameters, and that they intend to own and occupy the property while benefiting from the assistance.

The Downpayment Typically Required of a First-Time Homebuyer

Contrary to popular belief, most first-time home buyers do not need 20% down.  In many instances, first-time home buyers can purchase a home with up to no down payment.  That doesn't mean that there will be no out-of-pocket expenses.  They'll still need to fund the earnest money, appraisal, and home inspection just as every other buyer and it is always a good idea to have some extra funds to serve as a cushion against the unexpected.  But the requirement of 20% down to purchase a home for owner-occupancy is a myth that passed long ago in most instances.

Downpayment Assistance Programs for First-Time Home Buyers

Down payment assistance programs are often available to first-time home buyers at the federal, state, county, and city levels.  These programs sometimes offer thousands of dollars in interest and monthly payment free to the first-time buyer which helps with the down payment and closing costs.  The federal one is actually forgiven after five years of continued owner-occupancy.

Homebuyer and Ownership Training is available to Home Buyers

Counseling is available through HUD-certified Housing Counselors that help first-time home buyers better understand the process of buying a home, the planning process, and ways to retain the property during times of hardship.  In many instances, counseling is actually required of the borrower in order for them to take advantage of the down payment assistance program.

Mortgage Pre-approvals as an Advantage in the Buying Process

Speak with an experienced, trusted agent about the lenders in the market of interest before starting the home search.  While getting approved can take weeks, providing the lender's pre-approval letter with offers strengthens them considerably and could make the difference in a bidding war.

Frequently Asked Questions from First-Time Home Buyers

How can I afford the monthly payment at these interest rates?

Some first-time home buyer programs offer slightly lower interest rates than those offered to other borrowers.  In addition, some sellers may be willing to offer contributions toward financing that can make monthly payments more affordable.

What types of properties are first-time home buyers able to buy?

First-time home buyers may purchase a single-family home, an attached property such as a townhouse, or even a four-plex provided they occupy one of the units as their primary residence.  The property must be inhabitable (free of health or safety hazards), appraise at a value that secures the mortgage, fit within the program price range, and the credit-eligible borrower’s debt-to-income ratios.  But there are rarely any other important considerations.

How does the borrower get the down payment assistance funds?

The participating lender will get those funds to the settlement table in time for transactions to close.

Wrapping Up These Five Things for First-Time Home Buyers

A home purchase may still not be the right choice for every buyer while prices remain at all-time highs in many markets.  After all, home values could fall in the short term as further inflationary control measures take hold.  But since values also tend to rise over time and inventory and down payment assistance programs are both becoming more plentiful, first-time home buyers could finally be at a tremendous advantage. 

Avoid the Woulda, Coulda, Shoulda Syndrome!

If someone you know, or you are considering the purchase a primary residence for the first time, consider having a frank discussion with a qualified trusted advisor who understands real estate purchases and sales in your market.  At the very least, you’ll gain some peace of mind with your decision.