What to do to succeed in a difficult market

Lauren Niesz bought a new house with her boyfriend in January after being able to save more money during the pandemic.

Source: Lauren Niesz

Like many people forced to work from home after the start of the Covid-19 pandemic, 26-year-old Lauren Niesz found the conditions weren’t necessarily ideal.

Niesz, who rented a townhouse in southern New Jersey, often found himself working in a closet so her boyfriend’s work calls wouldn’t interfere.

In addition, the couple’s dog, now 2 years old, required frequent walks around the neighborhood.

After seeing a sketch online of a brand new home, Niesz contacted his real estate agent and made him an offer in September. Last month, they closed their newly built home in Howell, New Jersey, complete with a yard for their dog.

Much of the couple’s progress in racking up a down payment has happened during the pandemic, according to Niesz, technical product manager at Comcast.

“We were able to save so much money because we weren’t going anywhere or doing anything,” Niesz said.

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A survey by real estate firm Redfin found that stimulus checks and the ability to save more money during the pandemic were among the top ways new first-time home buyers could save for their down payments.

While the rule of thumb is usually to put down 20%, the National Association of Realtors finds that most homebuyers only put down 7%, according to Nadia Evangelou, senior economist and director of forecasting at the trade association of Realtors. real estate industry.

This is when Millennials – the generation born between 1981 and 1996 – enter the age of buying a home while facing market conditions that make it even more difficult to buy their first House.

Home inventory for people who generally qualify as first-time homeowners — with incomes between $75,000 and $100,000 — is at an all-time high. In 2021, there was a listing for 65 households in the starter home category, according to Evangelou. In 2019, there was one registration for 24 households.

“We’re seeing a drastic drop in the options they have,” Evangelou said. “They have fewer houses available than they can afford to buy.”

Still, there are conditions that could entice first-time home buyers to enter the market now.

Mortgages will likely become more expensive as the Federal Reserve plans to raise interest rates to curb inflation.

Plus, with rents up sharply from last year, buying a home would take the guesswork out of worrying about how much you’ll have to pay next year, the chief economist says. by Redfin, Daryl Fairweather.

“At least when you buy you can lock in your monthly mortgage payments,” Fairweather said.

But sealing the deal on a deal can be more difficult, as first-time home buyers are more likely to compete against multiple offers on homes, including those from existing homeowners and those willing to pay cash.

Just because you are “eligible” for this great mortgage doesn’t necessarily mean you have to take it.

Thomas Scanlon

financial advisor at Raymond James Financial Services

That’s exactly what Thomas Scanlon, financial adviser at Raymond James Financial Services in Manchester, Connecticut, said he recently saw with a 30-year-old first-time homebuyer, who was not a client. The potential buyer was competing for a house that received 16 bids. The winning bid was $30,000 above the asking price and the buyer paid all in cash.

Despite the frustrations that come with buying a first home in today’s market, it’s often the best way to grow personal wealth, Scanlon said.

“Long term, you clearly don’t want to wake up after a decade to a cigar box of rent receipts,” Scanlon said.

Experts say it’s more important than ever that first-time home buyers embark on a transaction well-prepared, or what Scanlon calls “with their eyes wide open.”

Start by researching what homes are listed for and what they’re actually selling for, and how quickly those transactions happen, Fairweather said.

A Chicago home goes on sale January 20, 2022.

Scott Olson | Getty Images

Taking steps to boost your credit score, pay off debt and possibly earn more money through side hustle will also put you in a position of increased financial strength, Scanlon said.

Make sure you line up everything you need, including mortgage pre-approval, before you’re ready to make an offer.

“If you visit a house and you like it, you’ll have to bid right away to be competitive,” Fairweather said.

However, it’s important not to get so caught up in a winning offer that you don’t think through all the financial implications.

If you outbid and don’t pay everything in cash, that’s more money you’re borrowing from the bank, Scanlon said.

Reset your expectations

If you put less than 20% down, you will need to pay for private mortgage insurance, or PMI. It could cost around $50 to $100 a month, depending on the size of the house, and will add up over the years, Scanlon said.

However, once you have built up around 20% equity in the house, you can remove the PMI. But it will be up to you to prove it and take the necessary steps.

You may also want to reset your expectations about how much you want to spend, especially after factoring in your mortgage payment along with other bills, such as car or student loan payments.

“Just because you’re ‘qualified’ for this nice big mortgage doesn’t mean you have to take it,” Scanlon said.

Above all, don’t rush into buying a house that you might regret later.

“The most important thing is that you buy a home that you can see yourself staying in for the long term, because that means you’ll have the best chance of building equity,” Fairweather said.

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Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in tassels.

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