5 Tips for First-Time Homebuyers in Today’s Market

When exploring homeownership for the first time, buyers may be surprised by some of the constant features of the housing market. Market fluctuations can’t be avoided. It’s hard to predict what home rates will be when you’re ready to buy. Inventory in your chosen city can change quickly. None of these challenges are new or unique to this time.

But owning a home can be a great financial move if you can swing it. Every day, thousands of first-time buyers close on their dream homes.

So, what’s the secret to success? Preparation, information, and a few tried and true tips for first-time homebuyers.

Here’s are 5 tips for first-time homebuyers:

Get Clear on Your Finances

Before you start browsing listings, you’ll want to clarify your financial picture. It’s not always fun, but it is critically important.

There are a few key pieces you’ll want to prioritize:

Credit Score

Your credit score is a number used to represent your creditworthiness, or your ability to repay a loan. And while it’s not exactly your entire financial story, lenders will place a lot of emphasis on it when determining whether you qualify and how much you might qualify for.

So, start by checking your credit. You can use MyFICO.com, third-party credit monitoring services, or get your score directly from the reporting agencies for free once per year at AnnualCreditReport.com.

Debt-to-Income Ratio

Lenders will also look at your debt-to-income (DTI) ratio. In other words, a comparison of the money you earn and the money you spend.

To calculate your DTI, take all your monthly debt payments (rent, car loan payment, student loan payment, credit card payment, etc.) and divide it by your gross (pre-tax) monthly income. Then, multiply that figure by 100 to get your DTI percentage.

Generally, you want a DTI of no more than 43%. But 36% or less is ideal.

Consider Pre-Qualification or Pre-Approval

Pre-approval is a statement from a lender that they’re (conditionally) ready to lend you funds (up to your pre-approved amount). In mortgage lending, pre-approvals usually come in the form of a letter. Pre-approval letters help paint you as a serious, dedicated buyer. They show that you went the extra mile and make it easier to act quickly and efficiently. They can also clarify how much you might be formally approved for, and where you should consider setting your homebuying budget.

Important note: pre-approval is different than pre-qualification. pre-qualification is a simpler process but is based on non-verified information. Either option can work for first-time homebuyers depending on where they are in their home buying journey, so consider your options before making a decision.

Know Your Local Market Like the Back of Your Hand

When it comes to today’s market, in general, prices and interest rates remain high. But knowing the specifics in your city or town can go a long way in empowerment.

Start by checking trends in your local market. This might include prices, inventory (the total number of homes actively listed for sale in each geographical area), and competition. Keep an eye on how many homes appear to be listed each day, and how many homes are pulled off the market. This will give you some good insight into how you might need to budget, and how quickly you’ll need to act.

Remember that trends can change even as you cross neighborhood lines! So, narrowing your search (based on commute times, schools, personal preferences, etc.) and then focusing your research will be even more effective.

Prepare to Act Quickly (but Wisely)

Today’s real estate market can be tough — new home builds haven’t kept up with demand, and some homeowners are locked into very favorable, low-interest home loans from the days of COVID. This means that, in lots of markets, inventory is relatively low. So, you might need to act fast.

As mentioned, pre-approval goes a long way here, but you might also consider:

• Exploring different home types. Homeowners who are open to fixer-uppers, townhomes, mobile homes, and more might have better luck.
• Considering different neighborhoods. Understandably, some of the most desirable neighborhoods come at a premium. Maybe you could find a great space in an adjacent locale, or one just a quick drive away.
• Making a list of wants versus needs. Sure, a marble shower and chicken coop would be great. But are they wants or needs? Clarifying what you can sacrifice (and what you can’t) will help make your decisions that much easier.

But while speed is important, don’t forget to do your due diligence. Never let a bidding war get the best of you, as your emotions could take over and lead to overbidding. And, while inspections and contingencies can be a bit of a drag, there’s a reason they exist. Identifying any problems and making an informed decision could save you money (and a headache or two) down the line.

Explore First-Time Homebuyer Programs

Lucky for you, there are hundreds of first-time homebuyer programs in markets across the country aimed at making homeownership that much more affordable!

These programs will all differ in their requirements, qualifying factors, and more, but just a few of your options might include:

• Federal programs
• State-specific programs
• Low-downpayment conventional loans
• Downpayment assistance programs
• Nonprofit programs
• Employer-sponsored programs
• Programs for students

And more!

To wade through all your options, consider speaking with a dedicated, knowledgeable mortgage professional.

Wrapping Up: Tips for First-Time Homebuyers in Today’s Market

Today’s real estate market isn’t exactly easy. But, with some education, preparation, and confidence, first-time buyers just like you can succeed.

Your dream home is out there — it’s time to go find it!