How First-Time Home Buyers Can Cope With Rising Home Prices
Reading news articles about rising home prices can be discouraging for would-be home buyers. Rising prices, record-high levels of student loan debt, and stagnant wages can make it more difficult for first-time buyers to save for what's needed for a down payment and qualify for a mortgage.
Yet there are a few creative ways to cope with rising housing costs and get into your dream home sooner — rather than later.
Consider Nearby or Adjacent ZIP Codes
The old adage in real estate is “location, location, location,” but often the location is the very thing that makes certain ZIP codes so pricey. When looking into a desirable area, consider the nearby or adjacent neighborhoods to scout for more affordable finds. The good news is that if your house is near a pricer area, home prices are expected to remain strong or even rise as demand for the area increases.
Purchase a Fixer-Upper
Home makeover projects are as easy as they look on HGTV. Still, purchasing a foreclosure or home that needs a little work is a smart move if you want to buy into a more expensive neighborhood and stay in your price range. Fixer-uppers can yield significant discounts in major urban areas — as much as 40% to 50%, according to research conducted by realtor.com, but inventory may be low, and the competition may be fierce.
Consider a Roommate
If you can afford a home but are concerned about what the monthly payment will do to your lifestyle (and budget) consider renting out rooms in your house to a long-term roommate or on housing-share apps. This way, your housing payment gets covered and any extra can go toward paying down the mortgage, paying off student loans, or maintaining your lifestyle.
Try a Starter Home Before Thinking of a Forever Home
Think about what you really need in a first-home purchase as opposed to what you fantasize about having. With so many first-time buyers now delaying home ownership until their early 30’s (when a family and kids comes along), many skip the notion of the starter home and leap right into the forever home - often at a cost.
Starting small allows buyers to start putting housing payments into equity, not rent. Should property values rise, after a few years a buyer would then be able to upgrade into something bigger or more practical for their lifestyle.
Also keep in mind that just because you qualify for a loan amount, it doesn’t mean you have to borrow the maximum. When shopping for homes, be sure to find something that sits comfortably in your budget once you factor in insurance, taxes, and home maintenance — and even discretionary funds.
While these tips may not land a first-time buyer in their ideal neighborhood straight away, equity (the amount of your house that you “own”) builds over time and works in favor of the buyer. Remember: With time and patience, many may be able to cash in on the equity in their first home and move into their ideal square footage or location.
Source: California Association of Realtors