Low Inventory & Price Growth Keeps 1st Time Homebuyers on Sidelines
The National Association of REALTORS 2017 Profile of Home Buyers and Sellers shows that a continued drought in housing supply has led to price growth, keeping many first-time home buyers out of the market even when the economy has experienced steady job gains and mortgage rates are at record lows. With the rise in home prices and inventory shortages, the lower end of the market is witnessing the worst of the supply crunch.
Despite strong interest in owning a home, local Realtors® are also seeing that Louisville’s low inventory is leaving first-time buyers hesitant to enter the market. But, there are several simple and important steps first-time buyers can take to prepare for finding their dream home.
The first is to start saving for a down payment and explore down payment options. It’s common to put 20% down, but first-time home buyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down, plus Federal Housing Administration loans and Veterans Affairs loans. Some tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan, and using an app to track your progress.
First-time buyers should also know their price range and get preapproved. There are helpful tools such as home affordability calculators that help determine how much they can safely afford to spend. It’s also smart to get a preapproval, where the lender thoroughly examines the buyer’s finances and confirms in writing how much it’s willing to lend and at what terms. Having a preapproval letter in hand shows the seller that the buyer is serious, and it can provide an upper hand over other buyers who haven’t taken this step.
It’s also important to budget for closing costs, which can be significant. Closing costs generally run between 2% and 5% of the loan amount. Buyers can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. Costs can also be defrayed by asking the seller to pay for a portion of the closing costs.
Lastly, first-time buyers should enlist the help of a Realtor® to help them navigate the process. Realtors® have a solid understanding of the local housing market, as well as expanded search power to find opportunities not listed online and to avoid out-of-date online search listings that are no longer on the market. A lot can be up for negotiation in the home buying process, which can result in major savings.